10 Apr

Building your homeownership budget

General

Posted by: Alisa Aragon

Making the transition from renter to homeowner is likely one of the biggest decisions you’ll make throughout your lifetime. It can also be a stressful experience if you don’t plan ahead by building a budget and saving prior to embarking upon home ownership.

Budgeting is a core ingredient that helps alleviate the stress associated with money issues that can sometimes arise if you purchase a home without knowing all of the associated costs – including down payment, closing costs, ongoing maintenance, taxes and utilities.

The trouble is, many first-time homeowners fail to carefully think about their finances, plan a budget or set savings aside. And in this society of instant gratification, money problems can quickly escalate.

The key is to create a realistic budget based on your goals. Track your spending and make your dollars go further by sticking to your budget once it’s in place. Budgeting offers a step-by-step formula for figuring out how to best save your hard-earned money to invest in homeownership.

Following are three top tips to help you prepare for the purchase of your first home:

1. Set up a savings account
You can deposit a predetermined amount into this account each pay period that you won’t touch unless it’s absolutely necessary. This will enable you to put money aside for a down payment and cover closing costs, as well as address ongoing homeownership expenses such as maintenance, taxes and utilities.

2. Save up for big-ticket items
As you accumulate money in your savings account, you will be able to also save for specific purchases to help furnish your home – avoiding the buy now, pay later mentality, which can have a negative impact on your credit when you’re seeking mortgage financing.

3. Surround yourself with a team of professionals
When you’re getting ready to make your first home purchase, enlist the service of a Licensed Mortgage Expert such as myself  and find a trusted real estate agent. Experts are invaluable as you set out on the road to homeownership because we help first-time buyers through the home purchase and financing processes every day. Experts can answer all of your questions and set your mind at ease. We have access to multiple lenders, and can help you get pre-approved for a mortgage so you know exactly what you can afford to spend on a home before you head out house hunting, while a real estate agent will be able to match your needs with a house you can afford. Both parties will negotiate on your behalf to ensure you get the best bang for your buck. And, best of all, these services are typically free. Experts will also be able to refer you to other reputable professionals you may need for your home purchase, including a real estate lawyer, home appraiser and a home inspector.

12 Mar

What is Shadow Lending? The key things you need to know.

General

Posted by: Alisa Aragon

What is Shadow Lending? The Key Things You Need to Know Like “shadow flipping,” the term “shadow lending” gets a lot of negative press. What it means and when it can be helpful. As seen in REW.ca

Over the last few years, the media has done a great job of telling wild stories about how so-called shadow lenders are seducing Canadians with bad loans, only to foreclose and steal their houses. The term “shadow” evokes all the right imagery: the back-alley deal, thugs with pipe wrenches, extortion and envelopes full of money.

The expression “shadow lending” (or “shadow banking”) is actually quite vague. It is a catch-all phrase that usually describes any practice of private lending done outside the walls of a traditional bank. So, if your parents loaned you $50,000 for a down payment, they are shadow lenders.

The Bank of Canada states,bank Shadow banking refers to a set of activities, outside the formal banking system, that carry out similar functions to those performed by banks.” It goes on to say that “while the term ‘shadow banking’ tends to suggest something secretive or illicit… on the whole, shadow banking serves a useful purpose.”

And one such useful purpose is increasing the choice of mortgage products for consumers.

Having more choices is one of the major benefits of working with a mortgage broker. As it becomes more difficult to secure traditional mortgage financing, due to government intervention, the alternative lending space is stepping up and creating solutions for clients who would otherwise be turned away from homeownership.

In other words, while the banks continue to narrow their qualifications, alternative lenders (private mortgage lenders) are filling the void and creating products priced based on risk. Sure, these products might come at a higher rate than a traditional mortgage. But ask yourself, if the bank turned you down for a mortgage for whatever reason, wouldn’t you want to at least be able to consider more options?

Here’s when getting a private mortgage makes sense:

  • You are purchasing raw land or a unique property that traditional lenders won’t touch because it’s outside their lending criteria;
  • You are looking at buying a property to flip or a home that is in major disrepair, and need the funds to do the renovations;
  • You have been recently laid off or have lost your job for another reason, and you need money to tide you over while you are looking for a new job;
  • You need access to equity in your home and the penalty to break your current mortgage is too high;
  • You have credit issues such as a consumer proposal or bankruptcy and it is preventing you from getting a mortgage for the full amount that you need from a traditional lender and you need a “top up”;
  • You need to consolidate high interest debt, and due to bruised credit, you have been turned down by traditional lenders;
  • A divorce, illness or some other life-changing event has had a major negative impact on your credit rating or low income, and you need mortgage financing until you get back on your feet;
  • You need to take out equity from your property to get back into good standing with an existing mortgage that is in arrears, power of sale or foreclosure;
  • You are interested in purchasing a new home, you have a sizeable down payment, ideally at least 15% of the property value;
  • You have an existing property with a small mortgage that leaves you with a fair amount of equity in your property. Ideally you want the total of your existing mortgages and the new one to be at least 85 per cent of your property value or less.

Most private lenders will not provide loans that go beyond a loan to value (LTV) ratio of 75 to 85 per cent.

The following is a list of some of the questions you need to ask when dealing with a private mortgage lender.

Is there a loan document? Just like banks, private mortgage lenders should provide a loan document that details the terms and conditions that are listed below. You will know exactly what you will be committing yourself to by seeking the legal advice of a lawyer to represent you.

What are the term(s)? Typically, private lender mortgages only want short-term mortgages. Therefore, you should find out how long the term it is for. Normally they are from one to two years. The important thing to consider is that at the end of term you will be able to get refinanced. If you feel that your situation may not improve by the end of the term you should look to negotiate a longer term.

What is the interest rate? The rate is important as it forms the basis of your monthly payments. You might also consider what the renewal interest rate would be if you need to renew with a private lender, and you should get this rate beforehand. This is critical if at the end of the initial term, you are still challenged with refinancing options.

What is the amortization period, or is it interest payments only? The amortization period is how long it will take you to pay off the mortgage. Most private lenders will require you to make interest payments only or might have a longer amortization period (e.g. 35 to 40 years) in order to keep the monthly payments lower.

Is there a penalty for paying off the mortgage earlier? There are private lenders that offer open-term mortgages, which means you can pay off the mortgage at any time during the term without paying a penalty. While other offer closed mortgages and if payed of earlier, you would typically have to pay a three-month penalty interest.

What happens in the event of default? One of the most common defaults is missing a mortgage payment. Typically, mortgage lenders need to advise you that you are in default and need to give you a certain period of time to take care of the default. Like traditional lenders, if you do not take care of the default, it can lead to foreclosure.

Is there a cost-of-borrowing disclosure statement? Along with the loan document, there will also be a cost-of-borrowing disclosure statement, which means the lender will need to provide you will full disclosure on the costs of borrowing.

Will the private lender be registered on the title of your property? Just like your traditional lender, the private lender will register their interest on the title of the property.

Are the execution of the documents signed at your lawyer’s office? Yes, you will need to have your own lawyer and the private lender will have their own lawyer as well. Be advised that, you will be responsible to cover the cost of both yours and their lawyers’.

So, how do you protect yourself from falling victim to shadow lending (if, in fact, you can “fall victim” at all)? Actually quite easily. Don’t buy into the media hype!

After that, if you don’t understand the terms of a mortgage, ask questions. And, if you still don’t understand, ask more questions. At that point, if you still don’t understand, seek legal counsel. And if you don’t like the terms of the mortgage presented to you, simply don’t sign. Ultimately, no one is forcing you to sign mortgage documents.

At the end of the day, you should always seek professional advice and make informed decisions. It’s your money and your property, you have every right to spend it, or not, and sell it, or not, how you see fit.

20 Feb

Home Renovations: Reality Television vs. Actual Reality

General

Posted by: Alisa Aragon

Millions love watching home reno shows – but how easy is it to do (and fund) such projects in real life? As seen in REW.ca

Home renovation shows are very popular today and are one of our favorite shows to watch. These shows are not only entertaining but tend to lead you to think how easy and quick it is to renovate your home. And we know that viewers enjoy the shows more when they are filmed in Vancouver as you recognize certain landmarks or streets, which you see often when you watch shows like Love it or List it Vancouver and Game of Homes. However, television shows are unrealistic, highly edited and can mislead people on the renovation process.

It’s true that we have become more knowledgeable about design and we definitely want the latest interior finishes and stylish open interiors that we see on television shows. But homeowners really need to understand all the less entertaining but very important factors involved in a home.

The Financing

Most home renovations shows do not talk about the financing aspect of the renovation – that’s not considered “sexy” enough for TV. But it is one of the most important aspects of your project – how are you going to pay for it?

Before you commit to a renovation project, meet with a mortgage expert to help you assess your financial situation. Every person’s financial needs and options are unique.

When asked, most people say they are financing their renovation with a line of credit. While you are only required to make payments on the interest only, many people are under the impression that they can manage paying the interest and go ahead with the renovations. The danger with using this type of financing is that eventually the principal has to be paid and you end up paying huge interest costs.

A home equity line of credit (HELOC) will give you a lower interest rate… if you currently have one in place. If you don’t, you will need to have at least 35 per cent of equity in your home to qualify for one (based on the current mortgage rules by the Bank Act).

Currently, you can refinance up to 80 per cent of the value of your home for a mortgage based on the appraised value. With today’s historical low interest rates, you will end up paying a higher interest rate on a line of credit or HELOC, and you are unlikely to pay down the principal compared to a lower interest rate with a closed mortgage where you pay principal and interest, saving you thousands in interest.

Another thing to consider if you are unable to pay off the debt quickly is that you might be better off to refinance your mortgage. It might be more beneficial to get a one- to five-year locked mortgage below three per cent by saving interest up front and using your lender’s pre-payment privileges. If you currently have a fixed-rate mortgage, find out what would be your penalty for paying it out early, it might still be worth it to refinance.

Home renovation shows are very popular today and are one of our favorite shows to watch. These shows are not only entertaining but tend to lead you to think how easy and quick it is to renovate your home. And we know that viewers enjoy the shows more when they are filmed in Vancouver as you recognize certain landmarks or streets, which you see often when you watch shows like Love it or List it Vancouver and Game of Homes. However, television shows are unrealistic, highly edited and can mislead people on the renovation process.

It’s true that we have become more knowledgeable about design and we definitely want the latest interior finishes and stylish open interiors that we see on television shows. But homeowners really need to understand all the less entertaining but very important factors involved in a home.

The Financing

Most home renovations shows do not talk about the financing aspect of the renovation – that’s not considered “sexy” enough for TV. But it is one of the most important aspects of your project – how are you going to pay for it?

Before you commit to a renovation project, meet with a mortgage expert to help you assess your financial situation. Every person’s financial needs and options are unique.

When asked, most people say they are financing their renovation with a line of credit. While you are only required to make payments on the interest only, many people are under the impression that they can manage paying the interest and go ahead with the renovations. The danger with using this type of financing is that eventually the principal has to be paid and you end up paying huge interest costs.

A home equity line of credit (HELOC) will give you a lower interest rate… if you currently have one in place. If you don’t, you will need to have at least 35 per cent of equity in your home to qualify for one (based on the current mortgage rules by the Bank Act).

Currently, you can refinance up to 80 per cent of the value of your home for a mortgage based on the appraised value. With today’s historical low interest rates, you will end up paying a higher interest rate on a line of credit or HELOC, and you are unlikely to pay down the principal compared to a lower interest rate with a closed mortgage where you pay principal and interest, saving you thousands in interest.

Another thing to consider if you are unable to pay off the debt quickly is that you might be better off to refinance your mortgage. It might be more beneficial to get a one- to five-year locked mortgage below three per cent by saving interest up front and using your lender’s pre-payment privileges. If you currently have a fixed-rate mortgage, find out what would be your penalty for paying it out early, it might still be worth it to refinance.

The Budget

On television, the designer often has some budget like $80,000 to renovate an entire main floor including the kitchen and finish the downstairs basement. The question is – are those numbers realistic? The reality is that we, as viewers, are not aware what has been factored into those numbers by the television producers such as design fees, permits, labour, material costs, and promotional giveaways, etc.

In order to have a realistic budget for your renovation, do research before you commit. Some people get a specific number set in their mind without knowing what is involved in the total scope of the renovation. It is critical in this step to work with a professional renovator as it will reduce surprises. Homeowners need to take responsibility for the renovator they select and for doing their homework.

A great source for proven renovators builders is an association such as The Greater Vancouver Home Builder’s Association (www.gvhba.org). As a general rule, if the price is too good to be true, it probably is. So don’t automatically go for the lowest price.

A professional renovator will work with you to create a detailed budget and timeline for your project so you know what to expect. Once you start selecting materials it is a good idea to take the budget with you to ensure you stay within your budget. There are times that homeowners run out of money midway through the project because they made too many changes along the way or ended up selecting more expensive materials.

The Timeline

On television, renovations are completed withi
n a few short weeks. The homeowners come in and are mesmerized by the transformation. The reality is that sometimes it can take up to eight weeks just for the kitchen cabinets to get built.

Before you start your renovation, prepare a timeline with a renovator so you know what to expect. By doing this, you will have an exact idea how long it will take to do the tasks and therefore plan accordingly.

Also, it’s important to remember that quality, professional renovators aren’t necessarily available right away. Some are booked months in advance, depending on the project. In order to stay on track, materials have to be bought ahead of time and certain items could be out of stock. It might take additional time to get them or in some cases replace them. It is important to remember that even fast projects still take a few months, while bigger projects can take up to a year to complete. Therefore, you need to be prepared.

The Plans

On most of the renovation shows you have the interior designer come into the home with their assistants and an iPad and start moving walls and design the new space within minutes.

In real life, renovations can be boring because every step of the process is well planned. When it comes to structural changes in the home, such as moving walls, doors, windows or adding additions, a structural engineer may be required in order to obtain a permits. A renovator needs to plan for these type of engineering costs and time delays in order to complete the project.

So when you do your own renovations, it may not have all the excitement that you have seen on the television shows – but we do know this. As long as you take into consideration the above factors, you will be happy with the end result. One that – despite the time, effort and money involved – you will be proud to come home to.

27 Jan

How Much Does Mortgage Rate Really Matter?

General

Posted by: Alisa Aragon

A great discounted rate on your mortgage is worth nothing if it’s going to cost you thousands in penalties down the line. As seen in REW.ca.

More often than not, borrowers are fixated on their mortgage rate because it’s the one aspect of their home financing they know to ask about. But it’s important to look beyond the mere rates and look into the bigger picture surrounding what is significant when it comes to your specific mortgage needs. It is important to compare apples with apples.

If we dollarize the difference between 2.99 per cent and 3.04 per cent, for instance, it works out to an additional $2.66 in your monthly payment per $100,000 of your mortgage. Over the course of a five-year term, this culminates into just $159.60 per $100,000.

While “no-frills” mortgage products typically offer a lower – or more discounted – interest rate (like the 2.99 per cent used in the example above), when compared with many other available products, the lower rate is really their only perk.

The biggest problem with looking at rate alone is that you may end up paying thousands of dollars in early payout penalties if you opt for a five-year fixed-rate mortgage, for instance, and then decide to move before the five years is up.

No-frills mortgage products won’t let you take your mortgage with you if you purchase another property before your mortgage term is up – for example, portability is not an option with this product. Portability is an important option that could save you money over the long term if the home of your dreams is within your reach before your mortgage term is up and rates have risen, which they have a tendency to do over a five-year period.

This type of product is only plausible for those who have minimal plans to take advantage of benefits that will help pay off your mortgage faster – such as pre-payment privileges including lump-sum payments and increase your mortgage payments between 15 and 20 per cent without penalties.

Other things to consider is whether you are getting into a collateral mortgage or a conventional mortgage. Unfortunately, many people don’t realize they have a collateral mortgage until it comes time to renew and they don’t have the flexibility they need.

It’s understandable why these products may seem appealing. After all, not everyone feels they have the extra cash to put down a huge lump-sum payment. And who needs a portable mortgage if you’re not planning on moving any time soon?

But it’s important to remember that a lot can change over the course of five years – or whatever term you choose for your mortgage. You could get transferred, find a bigger house, have children, change careers, separate from your spouse, etc. Five years is a long time to be anchored to something.

Many people won’t sign a cell phone contract for longer than two years that they can’t get out of, so why would they then sign a mortgage for five years that they can’t get out of?

The thing is, you can still obtain great mortgage savings without giving up the perks of traditional mortgages. For starters, many lenders are willing to offer significant discounts if you opt for a 30-day “quick close.”

And there are many other ways to save money. For instance, by switching to weekly or bi-weekly mortgage payments, or by obtaining a variable-rate mortgage but increasing your payments to match those of the going five-year fixed rate, you will be ahead of the typical discount of a no-frills product before you know it and you won’t have to give up on options.

Banks don’t give anything away for free – they are there to make money. That’s why it is essential to discuss the full details surrounding the small print behind the low rates. It’s also important to take into account your longer-term goals and ensure your mortgage meets your unique needs now and into the future. As mortgage experts will help you find that balance by finding the best mortgage for you.

7 Jan

Need to Fund Home Accessibility Renos? Here’s Help

General

Posted by: Alisa Aragon

Did you know that if you’re a senior or have a disability, you can get a tax credit for renovations to make your home accessible? As seen in REW.ca

The BC seniors home renovation tax credit assists individuals who are 65 years of age or older with the cost of certain permanent home renovations to improve accessibility or help the senior be more functional or mobile at home.

This program was introduced on April 1, 2012, therefore the renovation expenses must happen on or after this date. Any expenses incurred under an agreement entered prior to this date do not qualify.

When the BC government released its budget last month, it announced an amendment to the senior’s home renovation tax credit, extending the program to individuals that may be eligible to claim the disability tax credit and to the family members living with those individuals. (Learn about the eligibility to claim the disability tax credit here.)

In order to claim the credit for the year if on the last day of the tax year, the individual must be a resident of BC and a senior or a family member living with a senior.

The renovation must be completed to the applicant’s principal residence while the credit can be shared between eligible residents of the home to a maximum amount of the credit. The maximum amount of the credit is $1,000 per tax year and is calculated as 10 per cent of the qualified renovation expense to a maximum of $10,000 in expenses. This credit is a refundable tax credit, which means that if the credit is higher than the taxes the applicant owes, they will receive the difference as a refund.

The renovations or alterations that qualify must assist the senior with an impairment by improving access to the property; improving mobility and function within the property; or reduce the risk of harm within the property.

The following are some examples of renovations or alterations that qualify:

  • Lowering existing counters/cabinets or installing adjustable ones
  • Pull-out shelves under counter to enable work from a seated position
  • Doorways that are widened for passage, and swing-clear hinges on doors to widen doorways
  • Door locks that are easier to operate
  • Installing non-slip flooring or to allow the use of walkers
  • Turning bathtubs into walk-ins or showers into wheel-in
  • Grab bars and related reinforcements around the toilet, shower and tub
  • Hand rails in hallways
  • Light fixtures throughout the home and exterior entrances
  • Motion-activated lighting
  • Light switches and electrical outlets placed in accessible locations
  • Taps such as hands-free, relocation to front or side for easier access
  • Hand-held showers on adjustable rods or high-low mounting brackets
  • Lever handles on doors and taps, instead of knobs
  • Alterations of sinks to allow use from a seated position (and insulation of any hot-water pipes)
  • Increasing the height of the toilets
  • General renovation costs necessary to enable access for seniors to first floor or secondary suites
  • Wheelchair ramps, stair/wheelchair lifts and elevators

The following are some examples of renovations or alterations that don’t qualify:

  • All appliances, including those with front-located controls, side-swing ovens, etc.
  • Installation of regular flooring
  • General maintenance including plumbing and electrical repairs
  • Installation of heating or air-conditioning systems
  • Home medical monitoring equipment
  • Home security or any anti-burglary equipment
  • Roof repairs
  • Installation of windows
  • Any services to such as home care services, housekeeping services, outdoor maintenance and gardening services and security or medical monitoring services
  • Aesthetic enhancements such as landscaping or redecorating
  • Fire extinguishers, smoke alarms or carbon monoxide detectors
  • Home entertainment electronics
  • Insulation replacement
  • Vehicles adapted for people with mobility limitations
  • Walkers and wheelchairs

How to Claim the Credit?

The credit can be claimed when the applicant files their personal income tax return for 2012 and future years. Schedule BC(S12) must be completed on the tax return and put the amount that was spent on the eligible renovations beside box 6048 and form BC (479).

It is important to retain documentation to support the claim, including receipts from suppliers and contractors. If work has been performed by a family member, receipts for labour and materials must have a GST number.

If a receipt was received at the end of the calendar year and payed it in the following calendar year, the credit is to be claimed for the taxation year based on when the invoiced was received.

27 Dec

Thirteen things you need to know BEFORE renewing your mortgage

General

Posted by: Alisa Aragon

Is your mortgage coming up for renewal? Don’t be too quick to sign that mortgage renewal letter. More than 70 per cent of Canadian mortgage holders do just that, and what is the usual result? A higher rate and a mortgage product that might not be best suited to their interests.

Experience has shown that the “Big Banks” send their mortgage renewals out at a posted rate. Lenders are counting on the fact that most homeowners are too busy to ask questions or to inquire about getting a better rate. Don’t let this happen to you!

You should recognize that you are now negotiating from a position of strength as your renewalmortgage principal has dropped and in most cases your home value has increased. Lenders see you as a lower risk borrower and consequently you should be getting the best rates available. That may not happen if you simply sign the renewal document provided by your existing lender.

Rather, let the lenders compete for your business to be sure you do in fact get the best mortgage possible.

The following are some things you need to consider before you renew your mortgage:

      • Mark your calendar or digital organizer for four months before your renewal. On that date, start re-evaluating your needs to see what type of mortgage is likely to fit best this time. Start researching the market for products, features, interest rates, lenders and interest rate trends. If this sounds like too much work and you are leaning toward simply signing your bank’s offer when it arrives, ! Instead, take the easy route and let a mortgage expert do all the work for you, for free. Start taking action on your renewal 120 days (four months) in advance.
      • If you do nothing else, simply pick up the phone when you receive your bank’s renewal notice, thank them for the interest rate they have offered and ask them if they can bring it down a little. In most cases, they will say yes. Of course, you should wonder, “If I can get a lower rate by simply asking for it, imagine how much better rate and features I could get if I had a mortgage expert playing hardball with several competing banks!” Ask for a lower rate.
      • See renewal as a time to start over. So much may have changed in your life since you first took out your mortgage. It would be foolhardy to lock yourself into exactly the same mortgage at an unnecessarily high rate just because your bank doesn’t want to take the time to provide a financial review and make a more current recommendation. And don’t think this has to take up a lot of your time. Mortgage experts can perform a full review in a few minutes, whenever and wherever is most convenient for you.
      • Attractive new mortgage products and features may be available that you’re not aware of. New mortgage products are being introduced all the time. Not only do some offer better rates, they may also offer better pre-payment options, cash backs, amortizations, accelerated payment schedules, investment opportunities and more. But you will never know if you simply sign up for more of the same.
      • The rate market may have changed dramatically. When you first took out your mortgage, you may have gone variable because rates seemed to be continually dropping. But what if the economy and interest rates have shifted in the meantime, as they have recently? Maybe it’s time to consider locking in so your payments don’t start creeping up month after month. But you will never know if you simply sign up for more of the same.
      • You are not obliged to renew into the same kind of mortgage, nor are you obliged to stay with the same bank. When your mortgage term is up, all bets are off. Nobody owns you. Sometimes people feel loyal to a lender since the lender was good enough to lend you the money, you owe them your business. In reality, it’s a business transaction like any other. If the lender isn’t giving you the best rate, product, features and service, you have every right to take your business elsewhere. Of course, shopping around for the best alternative can be confusing and time consuming, so go to a mortgage expert to do all the legwork, comparisons and negotiation for free.
      • You can negotiate and play one bank off another. Again, don’t feel you are being disloyal by asking for a better deal or shopping around. Of course, you won’t be able to negotiate very effectively if you try to fit it within the 30-day window your bank gives you. This is another reason to start early. And it’s also a another good reason to use a mortgage expert – seasoned negotiators who know exactly how far to push each bank to get you the best deal.
      • If you can, pay down the principal. Renewal is a great time to put a lump sum down on your mortgage. There are no limits to how much you can pay. And since it goes straight toward your principal, even a modest amount can dramatically reduce your amortization and total interest costs.
      • Renewal is the best time to refinance. If you are thinking about taking out equity from your home for renovations, investments, children’s education, debt consolidation, etc., do it at renewal time. Since your mortgage term has ended, there are no early payment penalties, which can save you thousands of dollars.
      • Rate isn’t everything, but it’s tremendously important. Accepting your bank’s first renewal offer is like leaving money on the table. You can do better by shopping around yourself, and you can do MUCH better by letting a mortgage expert shop for you. Shaving a point off your rate can save tens of thousands of dollars over the life of your mortgage.
      • Don’t be scared off by fees to switch lenders. Your existing lender may tell you there’s a discharge fee if you move your mortgage. But don’t worry. Most lenders let you include the discharge fee into the new mortgage and it’s a minimal cost considering how much you can save in interest.
      • Make sure switching lenders is worth it. In almost every case, it’s very much worth your while to switch lenders if that’s what it takes to get a mortgage and rate that fits your needs best. However, keep in mind that moving to a new lender involves some extra steps. Since it’s a new mortgage, you have to go through the application process again, proving your income and getting your credit checked. In some rare cases, the tiny amount you would save by switching lenders may not be worth all this extra work. But even in these cases, it’s definitely worthwhile to have a mortgage expert review your situation and shop the market for you. A reputable broker who is looking after your best interests will tell you if it is optimal to stay with your existing lender.
      • Even if you get a lower rate, keep your payments the same. Sure, with a lower rate, you could enjoy lower payments and increased cash flow. But if you keep your monthly payments the same as they were when your rate was higher, you will pay off your mortgage sooner and be well on your way to financial security.

So if your mortgage is up for renewal, talk to a mortgage expert, who will be happy to provide you with a free consultation by reviewing your current situation and ensure you get the best rate and terms available.

As seen in REW.ca.

12 Dec

Understanding mortgage default insurance

General

Posted by: Alisa Aragon

As seen in New Home Guide Metro Vancouver

Mortgage default insurance is commonly referred to as mortgage insurance. It is often mistaken with homeowner/ property insurance or mortgage life insurance. Homeowner/ property insurance protects the individual’s home and possessions in the home against damages including loss, theft, fire or other unforeseen disasters. Mortgage life insurance is designed to repay any outstanding mortgage debt in the event the homeowner death or long-term disability.

The mortgage default insurance increases the opportunities for homeownership with a low down payment as saving for a 20% down payment can be difficult in today’s housing market. There are two types of mortgage options; conventional mortgages which are loans with a minimum 20% down payment and high ratio mortgages are loans with less than 20% down payment.

In Canada, mortgage insurance is required by the Government of Canada on all high-ratio mortgages. The insurance protects the mortgage lender only against a loss caused by non-payment of the mortgage by the borrower and it is not a protection for the homeowner. However, the mortgage insurance enables borrowers to purchase a home with a minimum down payment of 5%.

Mortgage default insurance is provided by insurers such as Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada and Canada Guaranty. Each mortgage insurer has its own criteria for evaluating the borrower and the property and it decides whether or not a mortgage can be insured. The lender and not the borrower selects the mortgage insurer. It is possible that the mortgage application can be approved by the lender but might not be approved by the insurer.

The mortgage default insurance premium is a one-time charge and it is paid by the borrower to the lender. The premium can be paid in a single lump sum at the time of closing or it can be added to the mortgage amount and repaid over the amortization period (or the life of the mortgage). The cost of default insurance is calculated by multiplying the amount of the funds that are being borrowed by the default insurance premium, which typically varies between 0.5% and 6.0%. Premiums vary depending on the amortization period of the mortgage, the loan to value ratio, the size of the down payment and the product.

Example of a premium calculation for a home purchase:

Property value: $400,000

Down payment: 5% or $20,000

Mortgage basic loan amount: $400,000 – $20,000 = $380,000

Amortization period: 25 years

Loan to value ratio: 95%

Premium amount: $380,000 x 3.60%

Default insurance cost: $13,680

Total mortgage amount: $393,680

* The cost of default insurance is subject to change if the purchase price or appraised value, the amount of down payment or the amortization changes. The final premium and the cost of the mortgage default insurance will be disclosed in the mortgage commitment document from the lender.

It is important to note that for insured mortgage loans the maximum purchase price or as-improved property value must be below $1,000,000. The borrowers can port the mortgage loan insurance from an existing home to a new home and may be able to save money by reducing or eliminating the premium on the financing of the new home.

Since there are different products available from individual lenders and are subject to lender’s guidelines, it is important to give me a call so I can analyze your situation, present several options and help you decide which product works best for you.

28 Nov

Exploring the Benefits of Reverse Mortgages

General

Posted by: Alisa Aragon

Most Canadian seniors have 80 per cent of assets tied up in their house – and they can access that money in retirement. As seen in REW.ca

Perhaps you have a friend or family member who has been dreaming about this moment throughout their working life. That dream is to retire and have the time and money to travel, fix up the family home, indulge in hobbies, visit grandchildren, spend weekends at the cottage, help their children buy a home, pay off debts, help their grandchildren with tuition fees, and most importantly, not have to worry about money.

But now that they are 55 or older, they may have been caught off guard by the expenses associated with retirement, such asproperty taxes, rising energy and utility expenses, and the overall cost of living, which seems to get higher every year. Sure, they have their pension income, but it may not be enough to make ends meet. Most Canadian seniors have 80 per cent of their assets tied up in their house. But accessing that equity can be difficult. Most banks won’t give them a mortgage because they don’t have enough income to make monthly payments.

So what are the options?

Well, they could downsize and sell their house. But isn’t that where they always dreamed they would spend your retirement? Leaving the home where they raised their family, put down roots and made lifelong friends would be heartbreaking. Besides, selling and moving can be very expensive once they have paid real estate fees, moving expenses, legal fees and so on. There’s got to be a better solution than leaving their family home.

There is a better solution for many seniors, and that’s a reverse mortgage. A reverse mortgage is a specialized financial product for people aged 55 and over, who own their own home. It lets them stay in their home while benefiting from the value they have built up in that property over the years. Compared with a regular mortgage, a reverse mortgage can offer substantial monthly cash savings, so they have all the income they need to live the retirement of their dreams.

Let’s explore the benefits of a reverse mortgage.

Regular mortgages require you to pay a lender – a reverse mortgage pays you:

If you and your spouse are 55 or older and you own your home as your principal residence, you may be eligible to receive up to 40 per cent of your home’s current appraised value in cash. The specific amount you will receive is based on your age, your spouse’s age, the location and type of home you have, and your home’s current appraised value. No matter how much you receive, you never have to make monthly principal or interest payments (until you move), so you get the money you need without reducing your cash flow.

There are no income, asset, employment or credit requirements:

Since the amount you receive is secured against your home, qualifying is easy and hassle-free – even if you are living on a very limited retirement income. You can receive the money whichever way works best for your lifestyle With a reverse mortgage, you can choose a single lump-sum payment or ongoing monthly, quarterly, semi-annual or annual income.You can even choose a lump sum to begin with, followed by ongoing advances over time.

A reverse mortgage can be used to clear up all your remaining debts:

Maybe you still have a mortgage remaining on your house and the payments are cutting into your lifestyle. Maybe you have monthly credit card bills piling up. A reverse mortgage can be the ideal solution. In most cases, you can use the funds to eliminate mortgage payments and credit card debts, and still have enough left over so you can enjoy life more and not have to worry about money. Your income taxes and pension are unaffected As a retired person, one of your major concerns is how much you will be paying in taxes each year, since that can really affect your cash flow. Fortunately, the money you receive from a reverse mortgage isn’t considered income – even if it’s invested in an account or annuity with monthly withdrawals. This is because the home equity you are accessing has already been taxed, since you purchased your home with after-tax dollars. Not only don’t you have to pay taxes on your reverse mortgage proceeds, they won’t bump you up into the next tax bracket. And since they’re not considered income, they won’t affect your Old Age Security (OAS) or Guaranteed Income Supplement (GIS) payments.

Your home remains your home:

You will never be asked to move or sell your home to repay your reverse mortgage, as long as you maintain the property and stay up-to-date with property taxes, fire insurance and strata fees. Your equity and estate is fully protected since the reverse mortgage amount can never exceed your home value. Sure, the equity in your home will decrease over the years as you receive payments, but your home’s value could increase even more quickly over the same period. Generally, 99 per cent of homeowners have money left over when their reverse mortgage is finally repaid (when you move or die). On average, the amount left over is 50 per cent of the value of the home when it’s sold. The interest on your reverse mortgage can sometimes be tax deductible If you use the money you receive to make non-registered investments such as GICs and mutual funds, the interest costs on your reverse mortgage can be written off at tax time. This can help offset the taxes you owe on your income, RRIF or RRSP withdrawals.

Mortgage experts like ourselves can introduce clients to all the benefits of a reverse mortgage. However, since we are not tied to any one lender or type of product, before recommending a reverse mortgage, we will do a thorough analysis of our clients’ situation, needs and goals. Only then will we make an unbiased recommendation about which product is right for them.

In most cases, that will be a reverse mortgage. But as mortgage experts, we have access to innovative lines of credit and other home lending products that may fit their specific needs even better.

19 Nov

How to Finance Renovations on your New Home

General

Posted by: Alisa Aragon

If you need to renovate your new home, there are innovative mortgage programs that can help you out. As seen in REW.ca

With house prices continually rising, sometimes the only home you can afford is a home that needs a bit of updating or needs renovations. But traditional financing can sometimes make these types of home unaffordable. That’s because you first have to come up with a down payment to qualify for a mortgage for the purchase price. Then as soon as you take possession, you have to qualify for some kind of home improvement loan. Not only is it difficult to qualify for two separate loans at the same time, it also makes buying more expensive.

Fortunately, there are innovative programs from mortgage insurers such as CMHC and Genworth that are designed for just this purpose. These programs helps qualified homebuyers make their new home just right for them, by making customized improvements, immediately after taking possession of their new home. All this is done with one manageable mortgage and with as little as 5 per cent down.

The improvements to be made under such programs can’t include structural changes to the home. Some of the improvements allowed include:

  • Updating or renovating kitchen
  • Updating or renovating bathrooms
  • New flooring
  • New paint
  • Finishing or renovating basement
  • New patio or deck
  • New energy windows/doors
  • Addition of garage, etc.

Some of the parameters of the program include:

  • As low as 5 per cent down payment (conditions apply)
  • Depending on the insurer, you can go up to 20 per cent of the purchase price with a maximum of $40,000 or 10 per cent of the as-improved value
  • Owner-occupied properties only
  • Down payment is based on the as-improved value
  • Other conditions apply

For example, the CMHC Improvements program lets qualified buyers borrow up to 10 per cent of the post-renovation value of a house and use that money to cover the cost of renovations.

Let’s say the house’s purchase price is $400,000 and the renovations you have in mind would increase its value by $40,000. That means the post-renovation value would be $440,000 so you could borrow $40,000 to cover the renovations.

Let’s See the Monthly Savings:

Straight mortgage with $40,000 line of credit:

  • Purchase price $400,000
  • Down payment $20,000
  • Improvements using line of credit $40,000
  • $1,773.51* mortgage + line of credit $316.67** per month
  • Total monthly payments: $2,090.17*

Purchase Plus Improvements:

  • Purchase price $440,000
  • Down payment $22,000
  • Total monthly payments $1,857.52*
  • Improved cash flow and lower interest costs
  • Living in dream home

To qualify, you have to provide a quote from a contractor or suppliers at the time of submitting the application to the lender. Once insurer (CMHC or Genworth) and your lender approve the renovation amount, it’s then added to your mortgage loan. However, you don’t receive the funds until the renovation is complete and has been appraised or inspected. This usually means you will need a short-term line of credit or come up with the funds ahead of time.

The best option is to work with a mortgage expert, such as myself, who has partnered with renovators and suppliers to make this program even more attractive. The renovator and suppliers will take care of the financing for you until the project is finished. Once the work is complete the solicitor will pay them directly the cost of the renovation. You will be rest assured that there will be no cost overruns (unless due to unforeseen circumstances), hidden costs and that the job will be completed on time and on budget.

The good news is that Alisa Aragon from Your Mortgage Solutions Group has partnered with renovators and suppliers to make this program even more attractive. The renovator and suppliers will take care of the financing for you until the project is finished. Once the work is complete the solicitor will pay them directly the cost of the renovation. You will be rest assured that there will be no cost overruns (unless due to unforeseen circumstances), hidden costs and that the job will be completed on time and on budget.

To see whether this type of program can help you affordably improve your new house into the home of your dreams, talk to a mortgage expert and we will provide you with a no-charge analysis of your needs and financial situation.

* Mortgage based on 5 per cent down payment with a fixed rate of 2.59 per cent, closed for five years and 25-year amortization
** Line of credit based on interest rate of 9.25 per cent interest payments only

21 Oct

Credit card rules: How to wean yourself off credit card debt

General

Posted by: Alisa Aragon

As seen in BC New Home Guide.

The Canadian government implemented credit card regulations that increases transparency and protects consumers. Here are some of the regulations:

  • Credit contracts and application forms must have a “summary box” that clearly explains interest rates, fees, and how long it would take to fully repay a balance if only minimum monthly payments are made.
    Banks must give advance disclosure of interest rate increases, even if this information is already in the credit contract.
  • You must give your consent before your credit limit can be increased.
  • If you transfer your balance to a lower-interest card, your payments now have to be allocated in your favour.
  • There’s now a limit on certain debt collection practices used by financial institutions.
  • Banks can’t charge over-the-limit fees resulting from holds placed by merchants.
  • You have a minimum 21-day interest-free grace period on all new purchases if you pay your outstanding balance in full by the due date.

While critics don’t think these regulations go far enough to protect the consumer, at least the government is trying to make an effort to help consumers avoid predatory lending practices. And that’s a good thing.

However, an even better strategy is to start weaning yourself off of credit card debt. Unlike taking out a mortgage to buy a home or revenue property, buying stuff with your credit card at high interest rates doesn’t yield any returns – it simply gets you deeper in debt.

The following are some tips to help you use your credit card responsibly so you don’t pay unnecessary charges and get in trouble with credit card debt:

  • When you pay for something with a credit card, you are taking out a loan and you have to pay it back.
  • Pay the balance in full each month
  • If you can’t pay it in full, pay as much as you can
  • Don’t make only the minimum payment
  • If you always carry a balance, get a low rate card
  • Pay a few days before the due date
  • If you have a line of credit, transfer the balance to your line of credit with a lower rate. The goal is to pay down your debt and not go further into debt.

Put yourself on a budget, take a part-time job (or start a home business) and eventually get your credit cards paid off. You will be astonished how much extra money you will have to invest in assets that actually appreciate in value and put cash in your pocket!