28 Jun

Thinking of Writing a Subject Free Offer? … Have a Plan!

General

Posted by: Brad Lockey

Thinking of Writing a Subject Free Offer… Have a Plan!

 

There is no denying that the housing market in Vancouver is on fire. If you’re looking to buy a property in this market, no doubt you’re stressed out. With all the talk about multiple offers, listings going for millions over asking price, and foreign buyers purchasing sight unseen, how do you make the best offer you can? How are you supposed to compete? At about this time you’ll ask yourself (or your Realtor will ask you), how important is that condition of financing anyway? Should I write a subject free offer?

If you are considering a subject free offer, let’s start by discussing a common misconception, the difference between a preapproval and an approval.

A preapproval is when we have determined how much of a mortgage you qualify for, we have pulled your credit report, and we have submitted your application to a lender to have them assess your situation and guarantee you a rate for a specific period of time. With a preapproval in hand, you are guaranteed absolutely nothing.

A preapproval should never be relied on as a guarantee of financing, and it should never give you the confidence to write an offer without a condition of financing.  

An approval on the other hand is when you have made an offer on a property, we have submitted your application along with all the supporting documentation, the lender has assessed your documents and has found both you and the property to be a good risk. At this time, they will issue an approval letter and you can be confident financing will go through. The problem is, lenders don’t issue approvals before you have an accepted offer on a property. Thus the importance of a condition of financing. 

It’s standard practice to include a clause in the purchase contract, to allow five days to arrange financing. Even if you are the most qualified applicant in Canada, if the property you are purchasing doesn’t meet the lender’s criteria, they will not issue you a mortgage. Period. Now, if you end up making a subject free offer on a property, and are not able to secure financing, you will lose your deposit, and run the risk of getting sued. Not a good scene. 

So is there ever a time when a subject free offer is ok? Ultimately that will be up to you and your tolerance to risk, but if you are considering it, you should most definitely have a plan. Collect as much information up front about the property, and look for red flags? If the property is a current or remediated grow-op, a “handyman special”, has water or fire damage, or does not conform to the neighbourhood, any of these could be huge issues to the lender.

If you don’t have at least a 20% downpayment, subject free isn’t for you. However if you have worked through a detailed plan with your mortgage broker, made a back up plan, and understand all the risks, it’s your call.


http://sabeenabubber.ca/thinking-writing-subject-free-offer-plan/

22 Jun

Divorce and What Can Happen With the Mortgage

General

Posted by: Brad Lockey

 

Divorce and What can happen with the Mortgage.

When tough times put stress on families sometimes the end result is divorce. While no one ever wants to see this happen sometimes it is inevitable. Recently, CMHC changed the rules about how much a house can be refinanced for, they have set the limit at 80% of the property value so that refinances would no longer fall under the insured mortgages. What they also did was set some guidelines for couples who are divorcing.

When a partnership in a home is being dissolved, that partnership can be a marriage, common law relationship or simply two owners of a property, it is now considered a sale. This means that the existing mortgage will most likely be paid out or in some cases one of the spouses can assume that mortgage and possibly increase the amount. Most likely it will mean that one spouse will purchase the home from the other. Here’s the difference when we are in this situation, the home can be purchased with just 5% down payment again as it doesn’t fall under the refinance rule.

One other thing to consider under the divorce rules is child support. As many parents have learned lately, child support and section 7 spousal support are liabilities for many lenders. So if you do have a $2,000 a month support payment, then that is the same as having a $2,000 dollar car payment. Not all lenders are looking at that the same, some have allowed us to reduce the yearly incomes by the amount of child support. The biggest difference here is of course that the reduction allows you to qualify for more mortgage, it’s just a matter of knowing which lenders work the system which way and a skilled mortgage broker will know the difference.

Ideally, of course, the divorce never happens but one way around child support being paid is joint custody where it is shared 50/50 and no liability is forced upon either spouse allowing them to maximize their purchasing power as the start their new lives.*(See footnote)

What also needs to be considered is that this needs to be done in writing, separation agreements are legal binding documents that tell the lenders what your responsibility is to the other partner in the divorce. We have also had situations where a statutory declaration saying that you have no responsibility to the other partner has been sufficient especially in cases of common law separations.

So many in’s and out’s to be considered when embarking on dividing your households and of course we here at Dominion Lending Centres would always advise legal counsel first and then talk to your mortgage brokers about what is required for the mortgage process.

* Section 7 goes with child support not spousal support AND 50/50 shared parenting does not eliminate child support – only if the incomes are the same which is almost never the case. The higher income earner still pays support and potentially a higher portion of Section 7’s. The blog is a little incorrect and shouldn’t be shared with divorcing people. Depending on how lenders look at it, spousal does reduce income while child support does not and is in fact a debt payment.

As always, it’s important to have your discussions, exercise your options and proceed with caution.
Knowledge is power, so take the time to learn.

 

 

20 Jun

Do not Renew! Renegotiate!

General

Posted by: Brad Lockey

Don't Renew! Renegotiate!

Everybody wants to save money on their mortgage!

A new home buyer is especially diligent when shopping for the best mortgage.

They make the effort to:

– find out the options

– compare rates and costs

– compare flexibility

This home buyer then moves into their new home and their mortgage can easily become something they don’t think about often. They might have a growing family and an ambitious career. In the meantime, the mortgage payments are happening on automatic pilot.

Eventually their lender sends them a letter to let them know that their mortgage is coming up for term renewal. That borrower is faced with some decisions to sort out.

1. Should they do things the “easy” way and sign the offer from their current lender?

2. Should they ask their lender for a better rate?

3. Should they move their mortgage to another lender?

The answer? You guessed it! Don’t Renew! Renegotiate!

1. Call your lender and ask them for their best offer and ask them to send it to you in writing.

2. Work with a broker who has access to many different lenders so you can better assess your options. Even if that broker has not worked with you before, they can still help you sort out your renewal.

3. Have the broker compare options for you including the option from your current lender. This analysis will include any possible costs for moving the mortgage and list possible advantages to moving to another lender.

4. Then decide. It will cost you nothing to ask and it could save you thousands of dollars.

Remember the effort when you first bought your home? Well you only need a small fraction of that effort to ensure you get the best mortgage when renewing your mortgage term.

It is not unheard of to have a mortgage renewal offer of a whopping 1% higher than competitive rates. On a mortgage of $400 000 that would cost approximately $4000 extra per year! I have also seen decent renewal offers where it was clear that the client was fine to stay where they were.

No matter what your final decision, it pays to consult with a Dominion Lending Centres mortgage broker before you sign the “easy “offer from your current lender.
Go ahead and make that call.

12 Jun

Do You Have a Chocolate Covered Mortgage?

General

Posted by: Brad Lockey

Do You Have a Chocolate Covered Mortgage?

I have something shocking to tell you.
Ready?
Canadian banks are a business like any other. Gasp and shock! This is nothing less than the truth. They are mandated to produce profits and provide their shareholders with a dividend at the end of the year. This is accomplished by charging us service fees and interest on loans and in a wide variety of other ways. Given that the Canadian banking system is one of the strongest in the world, which in turn benefits our economy as a whole, I certainly do not begrudge them their right to a profit. So why am I drawing attention to this you may ask, well I will tell you.

As a mortgage professional I am often told that people would rather stay with their bank because their bank has been so good to them or because the family has been with that particular bank for generations and I am genuinely baffled by the prevalence of this attitude. Of course your bank is good to you! You are a good person who pays your bills on time, has an account, or several, which generate a monthly service fee, and when you have borrowing needs you go to them and they lend you the funds at a reasonable rate. When it comes to a mortgage though, the loyalty you feel to your bank and the assumption that they will take care of your best interests can come with a high cost if you don’t understand the fine print. Let’s look at some of the things you need to be aware of, shall we?

1. Best Rates – I see this so often. Clients come in with their bank’s best offer, which is considerably higher than the going market rate, only to be told the bank is able to match after they spend a pile of time rate shopping. Your mortgage rate determines your payment and affects your family’s budget. Make sure you get the best rate you can.

2. Prepayment Penalties – In Canada there is no set standard as to how the banks and other mortgage providers have to calculate the penalty if you break your mortgage. A mortgage is a contract after all. The banks have a right to expect a certain rate of return on the loan they have made to you but life happens and a major event can cause you to need to break your mortgage, so make sure your penalty will be calculated reasonably. I have seen this amount vary from $4,200 to over $10,000 given the policy of the lender involved on the exact same mortgage amount and time remaining in the term.

Lenders are required to disclose the calculation to you but you need to be aware that some banks will calculate your penalty in a way that is most lucrative to them.

3. Collateral Mortgages – Many of the banks now register your mortgage differently. Say your mortgage is $250,000 but your home is worth $300,000. In this instance the bank would register a charge on the title of the home for the higher amount. The reason is so that if down the road you wish to get a home equity line of credit, you do not have to pay the legal fees again to do so. That can be a useful tool. The flip side is that this type of a mortgage is trickier to switch to a new lender at renewal. You may not be able to take advantage of today’s’ crazy low rates in a fee free switch if you have this type of a mortgage.

Placing your mortgage with your own bank does not all of a sudden turn it into a chocolate covered treat or make it any more prestigious. It can actually be very costly in the long run to choose one lender over another without educating yourself on their policies. Make sure you are choosing the best overall mortgage so that you are ready for anything life throws at you.

Call us at Dominion Lending Centres – we can help!

7 Jun

Financial Check-Up

General

Posted by: Brad Lockey

Financial Check-Up

Welcome to your free financial check-up, discussing 5 key factors to assist you in ensuring you are on the right track to a solid financial future.

Credit

Ensuring you are using credit wisely will pave the way to making sure you have options available to you if or when you need them. One thing we can all do is check our credit report on a regular basis – at least once each year – so you know where you stand and whether your credit score has been compromised in any way, especially through fraud. You can contact Equifax at 1-800-465-7166 or go to the website at www.equifax.ca for more information.

There are many people who believe that it is more responsible to not use credit at all but, in fact, if you don’t have any credit accounts reporting to the credit bureau, financial institutions have no way of knowing how responsible you are with credit and you will likely be turned down if you need a loan or credit card in the future.

Making payments on time is critical to maintaining a good credit score but also keeping your account balances below 75% of the maximum limit is another way of boosting your credit score. If you have multiple accounts, spreading the balances evenly among them using balance transfer methods can help to bring some accounts in line.

It’s wise to pay off your higher interest credit accounts first but that decision needs to be balanced with whether to pay down the higher-payment accounts.

Savings

The old adage, “10% of the money you earn should be tucked away into savings” is a good one. Although it may be difficult to be disciplined enough, if you “pay yourself” every month, the savings will start to build and you may find you don’t need to rely on credit to handle those unexpected expenses.

I personally have a monthly allotment that I transfer to my savings account the same day each month. I have a reminder in my phone to physically do the transfer and it is built into my budget as if it were another utility payment I have to make.

Taking advantage of a Tax Free Savings Account (TFSA) is a great way to earn higher interest on your savings as opposed to the low rate you are paid for a standard bank savings account. If your TFSA is managed by a Financial Planner you can see very good returns on your investments. Any money earned within your TFSA is tax-free and can be withdrawn at any time.

Retirement

Part of the savings picture is, of course, planning for retirement. If you can, work an RRSP contribution into your budget as soon as possible so you will be much further ahead when you want to put your feet up and enjoy.

I follow my Financial Planner’s recommendations when it comes to how much I contribute each year. As I am self-employed, the amount I contribute each year varies but I always make a contribution.

Contributing to an RRSP also gives you a tax break at the end of the year and you can use your tax return money to put towards paying down your mortgage or put it towards a vacation. Both of those are win-win scenarios.

Mortgage

Being the largest loan most Canadians will ever have, your mortgage deserves attention and regular check-ups. Choosing the right mortgage structure for you and taking advantage of today’s historically low rates, can put you on track to huge savings.

Take a look at your debt-structure. If you are making high monthly payments on high-interest loans and/or credit cards, you could easily restructure your circumstances by refinancing your credit accounts into your home. In most cases, this reduces the amount of interest you are paying overall and lowers your monthly payments. At the same time, if you take advantage of an accelerated payment structure (bi-weekly or weekly) and bump up your minimum required payment by the 15-25% that your institution allows, you can pay down your principal and be mortgage free much sooner!

In today’s mortgage climate, if you currently have a mortgage rate anywhere over 4% you should do yourself a favour and have me do a Free Mortgage Analysis for you so you can see apples to apples whether there are any financial advantages to breaking your existing mortgage for a better rate. When you can see the costs vs. benefits in black and white, the answer as to whether to refinance will be crystal clear.

Insurance

Making sure you have adequate insurance is essential in protecting yourself and your family in the event of a crisis or emergency. Whether it be home, health, life or disability insurance, it is always a good idea to review all of your insurance coverage at least once a year to make sure you are fully covered.

Mortgage insurance is a great idea but most clients benefit more from having independent mortgage insurance coverage as opposed to taking the insurance coverage offered by the institution that has your mortgage. The average Canadian makes a change to a mortgage every 38-42 months, you may have to re-apply for the same coverage at an older age and higher premiums. If your mortgage insurance is through a company that is independent of the bank, you would have the ability to keep the coverage and premium you initially had even if moving your mortgage to another institution at a better rate works better for you.

Another way to go is Term Life Insurance. Securing a policy that will cover all costs and pay out all obligations should anything happen to you will give your family peace of mind in the worst circumstance.

Critical Illness Insurance offers protection should you become affected by one of the approved conditions and is often paid in a lump sum amount once you have survived the specified waiting period. It gives you the assurance that the costs of a serious medical condition, as well as living expenses, will be covered.

Wrap Up

I recommend talking to your Dominion Lending Centres mortgage professional to make sure you make the best decision on all insurance needs.

I hope you have found some value in the information provided. As always, I recommend seeking out the experts and gaining knowledge before making any important decisions that will affect your future.