29 Mar

REVERSE MORTGAGE – SOME COMMON MISCONCEPTIONS

General

Posted by: Brad Lockey

The words reverse mortgage carry some negative connotation. What does it really mean? What makes reverse mortgage different than a regular or demand mortgage in Canada? There are no payments required if 1 applicant lives in the home. Payments can be made if they wish, they are truly optional.

No medical required and limited income and credit requirements.
Clients can receive up to 55% of the value of their home in tax-free cash, depending primarily on their age, property type as well as location.

COMMON MISCONCEPTIONS & OBJECTIONS:

I heard they were restrictive and bad for seniors.

Much of the negative press around reverse mortgages originated out of the U.S. The rates, fees, and restrictions are quite different from what is offered in Canada. The reverse mortgage providers in Canada follow the same chartered bank rules as other major lenders.

The bank will own my house.

This is only a mortgage; the title and deed remain in the client’s name. The owner will not be asked to move, sell, or make payments for as long as at least 1 applicant lives in the property.

I’ll lose all my equity.

The maximum the lender can finance is 55% of the value of the home. The average advance is more like 35% of the value, leaving ample equity to fall back on. If the real estate market increases at an average of about 2% to 2.5% per year over time, clients will find their home value increasing just as much over time as the balance owed.

The costs are too high.

The closing costs are the same as a regular mortgage, approximately $1,800, includes the appraisal and lawyer fee.

A line of credit is better and cheaper.

A line of credit is a great solution for someone with good credit, cash flow and most importantly someone with a regular income.

I paid off my mortgage, I don’t want more debt.

Leveraging money from your home is not debt. It’s the equity accrued over the duration of ownership. Only the interest is debt.

Why are the rates higher than a regular mortgage?

Other lenders can lend out money at lower costs. This is because they have other services to sell the client to help recoup their cost. The regular mortgages also require a regular repayment frequency; thus, the lender is constantly receiving funds back to re-lend.

I heard they have high penalties and you can’t get out very easily.

This is well suited for seniors looking to keep the reverse mortgage in place for 3 or more years. There might be other solutions for a timeline that is shorter. Penalties are always waived upon the death of the last homeowner. Penalties are reduced by 50% if selling and moving into a care facility.

I don’t need money very much so it’s not worth it.

The newest program offered is called Income Advantage. It allows clients to access money on their own timeline, when they need it or a pre-determined auto-advance. The borrower only pays on the amount advanced. The minimum advance required is $25,000.

If you’d like to talk to see if a reverse mortgage is a good fit for you, please don’t hesitate to reach out to a Dominion Lending Centres mortgage professional.

28 Mar

THE MOST IMPORTANT QUESTION THIS SPRING

General

Posted by: Brad Lockey

Short Version:

The most important question a home-seller must ask their Broker or their banker this Spring:

‘Do I QUALIFY to port my mortgage?’

You must re-qualify to port your mortgage to a new property, and you must re-qualify under stringent new rules.

How stringent?

Long Version:

Let’s say you have impeccable credit, a $100,000 income, and bought a house with a basement suite last year – you may have a mortgage of ~ $675,000…which you qualified for in 2017.

In 2018, you new maximum mortgage amount is closer to ~$530,000.

And if rates were to move up another 0.50% you’d be capped at ~$490,000.

If rates were to move up a full percentage point ~$455,000

Either way, even with no further upward movement, the family in this example, were they to enter into a binding sale agreement without confirming their qualifications would not be able to re-enter the market at the same price point.

Key Point – Do not ask if your mortgage is ‘portable’ (99% are). Ask if you currently qualify to move your mortgage to a new property. This will require an actual application and full review.

Key Point – The federal government has created a dynamic in which qualifying rates have shifted radically, and more precisely the ground has shifted under tens of thousands of middle-class Canadians feet. You have been protected from yourself, and you don’t even know it.

Key Point – Since Jan. 1, 2018, you’re subject to the new stress test. Even though you have impeccable credit, have never missed a payment, and even got a 3% raise last year – too bad.

Conclusion

Don’t list your home for sale without having something in writing from your current lender confirming that you QUALIFY to move your existing mortgage to a new property. If you have any questions, contact your local Dominion Lending Centres mortgage professional.

And if you’ve personally been caught in this ‘portability trap’, by all means make your voice heard. Share your story with me directly and also here; www.tellyourmp.ca

14 Mar

REFINANCING IN 2018

General

Posted by: Brad Lockey

Recently there were changes to the mortgage rules yet again, and one of the rule changes was regarding refinancing your home. At one point in the last 10 years you could refinance your home all the way back up to 95% of its current value, which in many cases has put that property what we call underwater, or upside down. Basically, real estate markets ebb and flow and if you refinanced to 95% when we were at the crest of a market wave then as markets rolled back you were underwater… clever huh.

Fast forward a few years and the government said ‘what a minute, that is dangerous’, and it was. Clients now had no options for that property except to keep it, hoping values came back or turn it into a rental and hope to break even. At this point, the government now said you can only refinance your home to 80% of the value which of course meant you needed to have equity in the property of at least 20% to make a change. This was an insurable product for many of our monoline lenders at this point, so it was something that was competitive in the market.

Welcome to 2018 and today you can still refinance your home to 80% but the Office of the Superintendents of Financial Institutions (OSFI) and CMHC now say that as a lender you can no longer insure this product. What does that mean for the average consumer? First off, it means that lenders across the board are not offering the same rate for insured mortgages as they are for refinances. The point spread between insured and uninsured mortgages has grown to, on average, .30% higher for 5-year fixed rates and it is .55% higher for variable rates.

To add to this extra cost, the new rules of qualifying at 5.14% which is currently the benchmark rate, applies to all mortgages including refinancing. Overall, the changes make it tougher to refinance and force Canadians to seek alternative options to take equity out of their homes. In many cases, this will mean looking to the private sector at higher rates when they need that money. If you have any questions about refinancing, contact your local Dominion Lending Centres mortgage professional.