19 Jan

All Things Being Equity!

General

Posted by: Brent Batten

Equity, we know it’s a good thing to have, but oftentimes people don’t know what they can do with it or how to access it. I’ll give an example…recent clients, highly educated with a doctorate, were sitting on a lot of high interest consumer debt, roughly $125,000, accumulated while in school. they were also sitting on about $250,000 worth of equity they could access in their current home. They just didn’t realize they could tap into that equity, pay out the debt, eliminate about $2,000 in minimum payments they were making each month AND their mortgage payment only went up about $150.00 because when we refinanced their home, we put them in a lower interest rate.

That’s the power of equity.

To know what you can do with your equity, you really need to understand how much equity you can access, it’s really simple, you can access up to 80% of your homes appraised value. So let’s say your home is appraised at $800,000, you can access 80% of that or $640,000. In this example, let’s say you owe $300,000 on your current mortgage, you can put $340,000 into your bank account. Now should you? It depends on if you’re doing it for a specific reason. To just refinance for the sake of refinancing, doesn’t make any sense.

So what reason’s could you refinance for? In my view, you should refinance if it’s going to provide you value in return. If you’re going to take the money, complete renovations to increase your property value, use the money as a down payment on a rental unit, consolidate high interest debt, take advantage of lower interest rates, those are value adding reasons. Refinancing to afford a dream vacation, I wouldn’t recommend it, but if that’s where you get value from, then so be it. The reasons you may want to refinance are essentially endless, provided they make good financial sense.

Now you know the what and why, let’s talk about the how. Pulling out that equity isn’t a terribly complicated process, you’ll have to complete a mortgage application, an appraisal will be ordered to determine your property value, and from there, you can borrow up to 80% of that value. Whatever you still owe on your current mortgage will be paid out, and the remainder of the money will be deposited into your account, and you’ll start with a new mortgage. Pretty simple. Now if instead of a refinance to pull out equity, you want to use a home equity line of credit (HELOC), the same steps apply, only instead of receiving a lump sum payment, you’ll have the funds available to you in the form of a secured credit line. Like a regular credit line, as you borrow money from and then pay back funds to the line, the money will become available to you again. You won’t have a regular payment for the HELOC portion, you’ll have a minimum payment you’ll need to make.

So what’s the difference between doing a refinance and doing a HELOC? Think of a refinance as a one time payment of the money whereas a HELOC, you can spend the money and as long as you pay it back, it becomes available to you again, so it’s continually available. The only drawback is that with a HELOC, it can only make up 65% of your total borrowed amount. So in our example above, home is valued at $800,000, you can access $640,000 (80%) the maximum HELOC you can add is $416,000, the rest of the $640,000 has to go into a fixed term mortgage which is just like a regular mortgage. Depending on the lender, as you pay down the fixed portion, the new equity you build will be automatically added to the HELOC until you reach that maximum 65%.

Equity is such an important item in your financial toolbox because it allows you opportunities to build your financial future. Whether you take the funds and invest them into your retirement savings, or you purchase a rental property, you are taking steps to secure your future. As a big believer in using equity to build your financial empire through real estate, to me that is the single biggest reason to assess your equity and take steps to access it.

12 Jan

Fixed vs Variable Rates…the Good, the Bad, and the Ugly

General

Posted by: Brent Batten

For as long as there have been fixed and variable rates, there have been disagreements over which is best for a borrower. Sadly, there is no right or wrong answer, they both have their strengths and weaknesses. So let’s dive in and talk about the good, the bad, and the just plain ugly.

Let’s start by looking at the fixed interest rate. A fixed rate is just that, it’s an interest rate that will not change during the length of your term. If you pick a 5 year term, meaning your mortgage will be up for renewal in 5 years, for that entire time, your rate won’t change. That’s the main advantage of a fixed rate, you get stability. If you’re the type of person that can’t sleep at night worrying about interest rates changing or panic at the thought of your payment changing, a fixed rate is the ideal solution for you.

So what’s the downside to a fixed rate? Glad you asked, the downside is that a fixed rate will be higher than a variable rate. You’re essentially paying for that security and peace of mind. Which, again, if that’s what helps you sleep at night, then you may consider it worth it.

So far, nothing too ugly in there right? Well let’s get talking about penalties. Every mortgage has certain pre-payment privileges attached, it’s the amount you can pay towards the principle every year without penalty. So what happens if you pay more, in the event you want to refinance, want to sell and need to break your mortgage, well now you face a penalty called Interest Rate Differential.

Interest Rate Differential is a bit complex but the basics are that your mortgage provider will look at the discount you received when you initially started your term, the discount is what the posted rate for your term was, subtract your actual rate. Now that you know the discount, that number will subtracted from the posted rate that closest matches however much time is left in your term. That’s the interest you’ll have to pay. So here’s an example:

Posted 5 year Rate 4.5 %
Actual Rate – 2.5%
Discount – 2%
Mortgage Remaining – $600,000

You want to break your term with 2 years left, and the posted rate for a 2 year term is 3.5%, so we subtract your discount from (2%) from 3.5% to give you 1.5%. We now multiply $600,000 by 1.5% to give you an interest rate differential penalty of $9,000. That’s not a small chunk of pocket change for most people, hence the ugly!

Ok, so now that we’ve done a deep dive on fixed rates, let’s look at the alternative, a variable rate.

Like the name suggests, a variable rate is a rate that can change over the course of your term. It’s tied to the prime rate, so you’ll be quoted something like prime minus 1.1% giving you a rate today of 1.35%. So what happens if prime increases, well your rate will increase as well. If prime changes from it’s current 2.45% up to let’s say 2.70%, your rate will change from 1.35% to 1.60%. As a result, your payment will increase. So as I mentioned before, if you can’t sleep at night thinking about the potential for your rate to increase, this is not the product for you! So there has to be some benefit to a variable rate, right? Absolutely!

Since you’re giving up some stability, you are going to get a better rate than a fixed rate. Generally your rate will be about 1% less than a fixed rate at any given time. So there is a cost savings, however, that can disappear if rates increase significantly.

Prime rate can change 8 times a year. The Bank of Canada, pre-schedules 8 announcements a year, and at these announcements, they’ll determine if they’re going to increase the overnight borrowing rate. If they do, prime rate will increase, causing your rate to increase. Conversely, if rates decrease, your rate will decrease.

The pre-payment penalties on a variable rate mortgage are also more favourable then a fixed rate. They are simply 3 months interest. So given our example above, the penalty would be calculated as $600,000 x 2.5% divided by 12 months, then multiplied by 3 months giving us a penalty of $3,750. A difference of over $5,000.

So armed with this information, you’re now ready to decide what type of rate is best for you. It’s important to talk to your mortgage broker about your long term goals, together, you can chart an appropriate action plan and make sure you are in the rate type that works for you!

4 Jan

Appraised Value vs Assessed Value

General

Posted by: Brent Batten

So you’ve heard the terms before and like a lot of people probably thought they meant the same thing. In a way they are both determining a value for your property, but that’s where the similarities end. So what do they really mean?

Assessed Value is the value that the municipal or provincial government has assigned to your property. They use that amount as a way of determining your property taxes, so it’s a very important number. They come up with that number by using a model that consists of comparisons to other similar properties, the current real estate market, and any extenuating issues or circumstances with your property. In BC, you can search your property value using the BC Assessment site, located here. Every January 1st, the value of your property is updated and you have until January 31st to appeal the value. Now why would you want to appeal? Simple, to keep your property tax low. Will you be successful, hard to say. You would need a really compelling argument and supporting information to keep your assessed value low.

In an interesting turn, a gentlemen in Vancouver was successful in arguing that his assessed value was too low. That’s right, he went out of his way to ensure that his assessed value was higher by several hundred’s of thousands of dollars. This is an example of someone that doesn’t understand the difference between appraised value and assessed value.

So what is appraised value? This is a number determined by an appraiser to calculate what your property is worth in today’s real estate market. It is not related to taxes, it is simply there to determine if you were to sell your home today, what would it be worth. Generally appraisals are a combination of comparisons to other similar homes, the current market, and a visit to your home to inspect the building quality. The appraised value is the number that your lender and your realtor really care about.

Lenders want to ensure that the home they’re lending money for you to purchase or during a refinance is actually worth the amount you think it is. That’s why an appraisal is a critical part of the lending process. Now with that said, not all purchases require an appraisal, there are computer generated auto valuation algorithms that many lenders use to determine if the price is in line with today’s market. In the case of a refinance, it is almost always a requirement to have a full appraisal done.

The big question we see a lot is what happens if the appraisal is less then the amount I’m purchasing the home for? Well, now you have what’s called an appraisal gap. Here’s an example:

Purchase Price – $600,000
Down Payment – $35,000
Mortgage – $565,000
Appraised Value – $575,000
Appraisal Gap – $25,000

In this case, the lender will assign the appraised value of $575,000 as the purchase price. So now what? You have a contract to buy that property for $600,000. So here’s what happens now:

Purchase Price – $600,000
Maximum Value – $575,000
Maximum Mortgage – $542,500
Down Payment – $32,500
Additional Cash to Close – $25,000

You’ll now be responsible for coming up with the additional $25,000 if you’d like to close on that purchase. Hopefully you listened to your mortgage broker, and included a subject to financing in your offer, so you have a way out of the purchase should this happen!

As you can see, it’s important to know the difference between assessed value, appraised value, and what happens if there is an appraisal gap.

2 Nov

Mortgage 101 – Terminology

General

Posted by: Brent Batten

I get it, the mortgage industry has its own language at times, and a lot of times, we don’t break it down for people in a way that’s clear and makes sense. So that’s why I’m taking things back to basics with this blog post. You’ll hear terms like contract rate, qualifying rate (stress test), variable rate, fixed rate, amortization, term, pre-payment privileges, pre-payment penalties, refinances, porting, owner-occupied, insured mortgage, uninsured mortgage, and the list goes on and on. If you don’t understand even half of them, you’re not alone!

We don’t learn this stuff in school growing up, we should, but we don’t. Should you understand the complexities of mortgages, no, that’s why there are people like me, who are professionals in the mortgage world, but should you understand the basics, absolutely! When you are done going through the mortgage process, you should have a grasp on the terms that matter most to you and your situation, if you don’t, then your mortgage broker hasn’t done their job correctly. Of course some people don’t care to learn or want to learn, and that’s fine too.

For today though, let’s start with those basics!

Term – the length of time your mortgage contract is in effect. At the end of each term, technically your whole outstanding balance is due, now most people can’t pay off the whole thing after one term, so they renew for another term, and another, and another until the balance is paid off. The length of your term is really up to you but most Canadians (66%) have a 5 year term.

Amortization – the length of time it will take to fully pay off your mortgage. In Canada, if your mortgage is insured (I’ll get to that one), the maximum you can amortization your mortgage over is 25 years. If it is uninsured, you can amortization it beyond 25 years with most lenders offering a 30 year term.

Rate – the rate of interest you are paying on the funds you borrow for your mortgage. Rates can be variable or fixed.

I’ll stop quickly here to explain what that would sound like if you’re talking to someone: My mortgage has a 5 year term, amortized over 25 years with a variable rate of Prime minus 1%. So now you know that they mean your contract is locked in for 5 years, you will pay off the mortgage completely in 25 years, and your interest rate is prime minus 1%. So far so good!

Variable Rate – a variable rate is a rate that changes as a banks prime rate changes. They are quoted to you as prime minus a certain percentage, in our example above, prime minus 1% would give you an interest rate of 2.45% (prime) minus 1% or 1.45%. Variable rates have more risk as they can change throughout the course of your term which is why they are lower than fixed rates.

Fixed Rate -is a rate that doesn’t change over the course of your term. It will be quoted to you as whatever it is, so for example, if you’re offered a fixed rate of 2.34%, your rate is 2.34%. Once your rate is locked in, it doesn’t matter what happens to rates during your term, yours will always stay the same.

Contract Rate – is simply the rate that is offered to you and what your payments will be based off. It is the rate that you will see on your mortgage commitment document.

Qualifying Rate (stress test) – lots of people have heard of a stress test but don’t know what it is. Essentially, when you ask to borrow money for a mortgage, we have to make sure you can still afford your payment if rates rise. So we have to make sure that you can afford a higher payment, so instead of using the rate and payment you’ll actually be making, we use a higher rate and a higher payment. Right now the stress test is set at your contract rate plus 2% or 5.25% whichever is higher.

That’s about as far as I want to go today with terms. We’ll cover much much more in the weeks to come! Hopefully you found a use for this and if there is anything you want explained further, feel free to text or call me at 250-307-5243 or email at brent@battenmortgages.ca or feel free to explore my site at www.battenmortgages.ca.

Some other resources to look at that will help you get a grasp at the basics is CMHC for consumers, which can be found here: https://www.cmhc-schl.gc.ca/en/consumers

4 Aug

Down Payments…The Ins and Outs

General

Posted by: Brent Batten

As we all know, saving up for a down payment is one of the most difficult aspects of buying a house. Let’s face it, the average person doesn’t generally have 10’s of thousands of dollars just sitting there waiting for a rainy day. So how on earth do you come up with enough and how much do you actually need? Let’s dive in.

HOW MUCH DO I NEED?

First things first, there are all sorts of misconceptions floating round about down payments these days that 5% is the magic number. You see a house that’s $600,000, grab your calculator (if you’re like me who needs a calculator for everything) and figure out what 5% is. $30,000 is what you come up with and think finally, I found the house I want, I have saved up $30,000 + an extra 1.5% of the purchase price for all the closing costs (don’t worry I’ll touch on them too!), so I’m going to go apply for my mortgage. How shocking is it when you ask your mortgage broker how much you need to have available they tell you that for the down payment you need $35,000. How can that be? You did the math, you know 5% of $600,000 is $30,000. Well…..its  because 5% isn’t the whole story. On a purchase in Canada, it’s 5% of the first $500,000 and 10% of any amount above $500,000. So in our example, let’s break it down:

5% of $500,000 = $25,000
10% of $100,000 = $10,000
Purchase Price of $600,000 = Down Payment of $35,000

So now that home you saw will have to wait a little longer until you manage to save up the extra $5,000 you weren’t expecting. That can be demoralizing, you saw the home you’ve waited for slip through your fingers. That’s why it’s important to know what kind of costs you can expect and exactly how to quickly calculate them.

WHERE CAN I GET MY DOWN PAYMENT?

This is the second most common question that we get right behind how much do I need. What money can you use for your down payment. There are lots of different policies that lenders have so without getting into each lender and their specific policy, I’ll stick to the three main ways people can come up with enough for a down payment.

  1. RSP Savings – you can withdrawal up to $35,000 tax free from your RSP’s as a first time home buyer to use for your down payment. Under the Home Buyer Plan, you don’t have to pay the withholding tax you normally would when taking money out of your RSP. You will then have 15 years to repay your RSP beginning the year following your purchase. The amount you took out is simply divided into 15 and that’s how much you are responsible for contributing back to your RSP each year. You of course can put more in and contribute as fast as possible, you don’t have to wait the 15 years.
  2. Savings – you can set aside x number of dollars from each pay cheque, from tax returns, from whatever source makes the most sense for you. It’s best to have a plan, so you know that you are going to take the money right away, put it into savings and let it accumulate. If you’re just putting a bit here and a bit there without really planning for it, it may take a significant amount of time to get to your goal!
  3. Gift – something that we see more and more is parents wanting to help their children get into the real estate market. They’ve lived through renting and know the value of owning your own home, so of course they want that for their kids. A gift can come from your immediate family, so think mom/dad, brothers/sisters, grandparents. Anyone outside your immediate family, there will have to be a very compelling reason why they are gifting the money to you and their connection to you. So let’s say you were raised by your aunt and uncle and they want to help you out, odds are high that would be acceptable. The main thing with a gift is that it must be a true gift with no expectation of repayment.

WHAT ABOUT OTHER COSTS?

The down payment isn’t the only thing that you have to save up for. The other piece is your closing costs which lenders want you to have 1.5% of the total purchase price available. So in our example of a $600,000 purchase, your closing costs would come to $9,000. Now that’s not to say you’ll spend the entire $9,000 or you’re required to, it’s just to make sure you can pay for items such as an appraisal (if required), legal costs to close, property transfer tax, title insurance to name a few.

So now that we know what closing costs could be, let’s see what your total amount needed to purchase a $600,000 home with the minimum down payment would be:

$600,000  Purchase Price
$35,000    Down Payment
$9,000      Closing Costs

So in total, you’d need $44,000 saved up, which is a long way from the $30,000 you may have initially thought. This is why you should always reach out to your mortgage broker to discuss, even if you’re not ready to buy, but just to get an idea of what costs you’ll need.

26 Jan

What will the real estate industry look like in 2021?

General

Posted by: Brent Batten

What will the real estate industry look like in 2021?.

If there is one word that defines life in 2021, that word is change. How much and for how long is uncertain. And while some changes may be temporary, many may be here to stay.

How will all of this change impact the real estate industry? Some key trends have emerged that bear closer scrutiny.

RESIDENTIAL REAL ESTATE

With more and more people working from home and the potential of many continuing to do so in a post-pandemic world, there is an increased need for more space. Enter suburbanization. Residents living in major urban centers are steadily moving to suburbia. Will suburbs become 18-hour cities? Who knows? One thing is certain, living cheek to jowl with thousands of other people is no longer a viable option for many.

OFFICE SPACE

For a while now, open-concept office space was the trend. That trend is now dead. While it allowed companies to downsize to smaller properties since less space was needed, after COVID-19, once workers begin to return to the office, we may see a return to traditional working spaces and the need for larger office buildings to accommodate them.

RETAIL SPACE

Bricks and mortar businesses have been hit hard and have seen a sharp decline in sales. Many big-name brands that previously anchored large retail spaces have permanently shut their doors. What does this mean for shopping malls? Will they survive? Experts suggest that to do so, they will have to be creative and embrace change. Think more medical clinics and multi-family residential homes rather than clothing stores with multi-user fitting rooms.

PROPTECH (PROPERTY TECHNOLOGY)

The real estate industry was on the brink of widely embracing proptech before the pandemic hit. That acceptance has accelerated like a rocket. In order to stay engaged with customers, service their needs and remain in business, companies have been forced to innovate in order to survive. This embrace of innovation will help to stabilize many sectors once the pandemic is behind us.

5 Jan

5 Things to Know Before Buying a Rural Property.

General

Posted by: Brent Batten

As cities continuing to grow bigger and busier, a rural home beyond those limits can seem like a dream come true! However, before you dive into country living, there are a few things you should know! Especially, how different it can be to qualify for a mortgage.

Buying a Rural Property

1. CHECK THE ZONING

When it comes to buying rural property, it is important to check how the property is zoned. This is vital! Zoning will determine how you are able to use the land, as well as the types of buildings that are allowed and where they can be located. Is the property zoned as “residential,” “agricultural” or perhaps “country residential”?

Zoning could affect the lenders available to you and what you qualify for, as well as what you can do with that property. Differences in lending and foreclosure processes, has caused some lenders to be hesitant with financing mortgages in agricultural/country residential zones.

2. PROPERTY BOUNDARIES

Once you have determined how a property is zoned, it is important to look at the land. Requisitioning a survey early in the process will help mark the exact boundaries of your property to avoid future disputes. This is also a good time to get an appraisal done on the land and its value.

3. CONSIDERING THE LAND AND YOUR MORTGAGE

What many borrowers don’t realize is that land has a drastic effect on mortgage qualification and what you can borrow. In fact, most lenders will mortgage: (1) house, (1) outbuilding and up to (10) acres of land. If you have a second building or extra land that is being purchased, you will need to consider additional funding on top of your typical 5% down payment.

4. WATER AND SEWAGE

When it comes to rural living, many people draw water from private wells and utilize septic tanks for sewage. To ensure everything is safe and in working order, it is a good idea to have an inspection done on the septic tank and water quality as a condition on the purchase offer. Due to the nature of these properties, be advised that inspections may cost more than it would in the city. However, it is important as lenders may request potability and flow tests!

5. COVERAGE MATTERS!

Coverage matters, especially when you are living away from the city. When it comes to rural properties, there are two types of insurance that you should consider:

  1. Home Insurance: When it comes to rural living, this can be more expensive than city homes due to the size and location of the land and distance from fire stations and hydrants.
  2. Title Insurance: This is vital for rural purchases and will protect you from unforeseen incidents with the deed or transfer. It will also alert you to any improper previous use of the property (such as dumping for waste).

If you are thinking about purchasing a home in a rural area, be sure to speak to me before you do anything. I will recommend a realtor who specializes in rural properties and knows the area best. I can also help ensure you understand any differences in the mortgage process and qualifying that come with rural purchases.

22 Dec

Getting a Mortgage When You’re New to Canada!

General

Posted by: Brent Batten

Getting a Mortgage When You’re New to Canada.

Canada has seen a surge of international migration over the last few years. In 2019, we welcomed a total of 313,580 immigrants to the country! This is an increase of 40,000 individuals when compared to 2017 numbers.

New to Canada Mortgages

According to planned immigration levels, it is estimated that Canada will receive 341,000 permanent residents in 2020. In 2021, we are expecting 351,000 and 361,000 in 2022. Federal Immigration Minister, Marco Mendicino, stated that by 2022, “the year’s new permanent residents in Canada will account for one per cent of the population”.

With all these new faces wanting to plant roots in this great country, we wanted to touch base on how new immigrants can qualify to be homeowners!

PERMANENT RESIDENTS

If you are already a Permanent Resident or have received confirmation of Permanent Resident Status, you are eligible for a typical mortgage with a 5% down payment – assuming you have good credit.

NOT YET PERMANENT RESIDENTS OR HAVE LIMITED CREDIT

For Permanent Residents with limited credit, or individuals who have not yet qualified for Permanent Residency, there are still options! In fact, there are several ‘New to Canada’ mortgage programs. These are offered by CMHC, Sagen and Canada Guaranty Mortgage Insurance, and cater to this group of homebuyers.

NEW TO CANADA PROGRAMS

To qualify for New to Canada programs, you must have immigrated or relocated to Canada within the last 60 months and have had three months minimum full-time employment in Canada.

Individuals looking for 90% credit, a letter of reference from a recognized financial institution. Or, you will be required to provide six (6) months of bank statements from a primary account.

If you are seeking credit of 90.01% to 95%, you will need to produce an international credit report (Equifax or Transunion) demonstrating a strong credit profile. Or you will need to provide two alternative sources of credit, which demonstrate timely payments for the past 12 months. The alternative sources must include rental payment history and another alternative. This could be hydro/utilities, telephone, cable, cell phone or auto insurance.

ALTERNATIVE LENDERS

Another option for New to Canada residents, depending on your residency status and credit history, are alternative lenders such as B-Lenders and MIC’s (Mortgage Investment Operation). If you do not qualify for the New to Canada programs, or a standard mortgage, reach out to a DLC Mortgage Broker and they can help you navigate the alternative options!

Before Submitting Your Mortgage Application

Utilizing a mortgage professional will ensure you understand your options. They can also help determine the best program and mortgage choice for you. Before you talk with a mortgage professional, there are a few things you need to know when it comes to submitting an application – and getting approved – for your first mortgage in Canada:

SUPPORTING DOCUMENTS!

If you’re new to the country but have weak credit, supporting documents will be needed. These may include: proof of income, 12 months worth of rental payments or letter from landlord, documented savings, bank statements and/or letter of reference from recognized financial institution. These documents all paint the picture of whether you are a safe investment for a lender.

BUILD YOUR CREDIT RATING!

This is one of the most important aspects to getting a mortgage! Your credit rating determines your reliability as a borrower. In turn, this will determine your down payment rate. A great way to build your credit is by getting a credit card to use and pay off each month. Paying other bills such as utilities, cell phones and rent can also contribute to your credit score and reliability.

START SAVING! 

One of the most expensive aspects of home ownership is the down payment, which is an upfront cost but is vital to securing your future. As mentioned, the down payment can either be 5% or 10% depending on your status. However, if the purchase price exceeds $500,000, the minimum down payment will be 5% for the first $500,000 and 10% of any amount over $500,000 – regardless of your residency status.

CHOOSE A MORTGAGE PROVIDER! 

Once you are ready to get your mortgage, you need get in touch with a local mortgage professional. They can help you review your options and find the best mortgage product to suit your needs.

Buying a house is an exciting step for anyone, but especially for individuals who are new to the country. As daunting as it may seem, purchasing a home is completely possible with a little knowledge and preparation. If you are new to Canada and looking to get a mortgage, connect with me today for expert advice and options that best suit you!

15 Dec

Rate Holds Explained!

General

Posted by: Brent Batten

Rate Holds Explained.

If you shopping for a home, or have worked with a mortgage professional in the past, you’ve most likely heard of rate holds before. If not, it is something that every potential homeowner should be aware of. This is especially true for the application process as it has some great benefits for active shoppers.

If you are not familiar with the term, a ‘rate hold’ refers to locking in a specific mortgage rate for a limited period of time. This is offered through most lenders, assuming you are a potential client looking to purchase a home and need a mortgage. They are not eligible for individuals that are refinancing their mortgage, or looking to transfer it to another lender.

If you qualify for a rate hold, there are a few things you should know – from restrictions to benefits! The first and most important is that rate holds are typically only offered for a period of 90-120 days. So, once you have created your mortgage application with a broker and submitted it at the interest rate that best suits you, that rate will be protected for 90-120 days while you shop.

A rate hold is not a commitment. It does not force you to work with that lender, or the mortgage broker who submitted it. It also does not affect your future chances of receiving approval down the road. Instead, it simply guarantees that rate for you, if you find a home you want to purchase and sign the mortgage agreement before the rate hold is up.

This can be truly beneficial in volatile markets or those with high competition. If you submit your application to a lender for a fixed rate of 2.49% on a five year term, but while you are searching for your perfect home that rate moves up to 2.99%, the rate hold will protect you and allow you to still sign at 2.49%. This can mean huge savings!

For instance, if you are looking for a standard $500,000 mortgage (25 years amortization, fixed-rate, 5-year term), your monthly payments would be $2,237.35 at 2.49% interest. This would jump up to $2,363.67 per month at 2.99 percent. This is a difference of $126.32 per month or $1,515.84 annually; which can really add up on a 25-year mortgage!

Another benefit is that, if the rates go down, it does not stop you from taking advantage of the lower offer. Instead, it protects you from rate increases after you’ve determined your budget and are in the process of purchasing a home.

It is also important to note that, once the rate hold expires after 90-120 days, there is nothing stopping you from submitting another rate hold. It will just be subject to the interest rates as they stand on the day of submission.

Reaching out to a mortgage professional can help you better understand the current rates and benefits of a rate hold. In addition, they can help you find the best option to suit your needs thanks to their connections with hundreds of lenders! Why wait? Contact me today to discuss your options!

6 Dec

It’s All About The Property

Mortgage Tips

Posted by: Brent Batten

It’s All About The Property.

When your mortgage application goes through the approval process, they are not only looking at you, but also the property in question. In fact, sometimes when an application is denied it has nothing to do with you, and everything to do with the property.

To improve your chances of success when it comes to financing, there are three main things to consider:

  1. The type of property
  2. The location of the property
  3. The usage of the property

Let’s take a look at some of the specifics for each of these considerations.

Type of Property

There are various types of properties when it comes to home ownership – detached houses, semi-detached, condos, townhouse, duplex, carriage or heritage home. Depending on the type of property you have chosen, there may be specific considerations.

CONDOMINIUMS

When it comes to condo properties, the lender (and potentially the insurer) will consider the age of the building. In addition, they will look at maintenance history (or lack thereof), as well as the location for marketability. Some lenders may have stipulations that limit themselves to buildings with a certain number of units, or past a certain age.

If the condo you wish to buy is lacking a depreciation report, has a low contingency fund or large special levies pending, these will be red flags for the lender. Any of these situations will require a more thorough review. These items should also serve as strong considerations for you as it indicates the management (or lack of) for that condo building.

ADDITIONAL UNITS

If you are looking at a property with additional units, it is important to consider that buildings with over four units, are considered a ‘commercial’ property and would be evaluated on that basis.

HERITAGE HOMES

Whether registered or designated, heritage homes require a more detailed review and often come with special considerations for financing.

LEASEHOLD OR CO-OP PROPERTIES

These properties also have specific requirements, particularly when it comes to the maximum loan-to-value which means they will require a larger down payment. These types of properties also typically call for additional documentation, and may have varying interest rates.

If you shift from a standard condo to a lease-hold property, your down payment amount will likely change. If you want to move to a small rural town or a small island, there will be fewer options. In addition, you may have to pay a higher rate as well as provide more documentation on the property.

All About The Property

Location Considerations

You’ve heard it before – location, location, location! Location matters just as much to the potential homeowner as it does the lender. Some things to keep in mind when it comes to location include:

POTENTIAL RESALE VALUE

If the location limits the potential resale value for the building, lenders may not provide financial approval on that property. This is due to the increased risk if the borrower defaults. In that case, the lender may not be able to foreclose the property and get enough funds back due to the low resale. That said, some lenders may allow these properties but they might reduce the loan amount if the building is located outside of a major market area, or they may add a premium to the interest rate.

RURAL CONSIDERATIONS

For properties with water access only, or with no access to municipal utilities (heat, water, electricity, sewage), there will be additional requirements to assess lender risk. These requirements might include: Insurance coverage, water testing, septic tank inspection, seasonal access and condition of the property.

TRANSFER TO ANOTHER PROVINCE

It is also important to note that if you purchase a home in one Province and are transferred or move to a different province, some lenders won’t be able to port the mortgage due to being provincially based.

Usage Considerations

The use of the property can include things such as personal, investment, recreational, agricultural and also consider previous activities. A few things to keep in mind are:

CONDOMINIUMS

If you are looking at purchasing a condo on a property that has either a commercial component in the building (such as shops on the first floor), or allowable space in the unit for businesses (live/work designation), you may have limited lender options. In some cases, lenders will avoid these types of properties at all costs, while others may require approval from the insurer (i.e. CMHC).

RENOVATION REQUIRED

If the property requires renovations, the extent of the upgrades, as well as the property value will be taken into consideration.

PREVIOUS GROW-OPS

Homes that previously existed as grow-ops, have special lending options. These typically come with higher interest rates and costs due to decreased value.

RENTAL SUITES

For owner-occupied homes that contain rental suites, it is important to consider potential rental income. If the house is purchased for investment, rental income is automatically considered. This can result in a different interest rate than simply an owner-occupied dwelling. In these cases, the rental income can also increase the resale value of the property. However, an appraisal of the property must be conducted and reviewed to ensure the condition. This will also uncover whether any renovations were completed to add value.

SECOND PROPERTIES

Purchasing a second home for recreational use will require a review to determine if it is seasonal or year-round access.

Before you begin your home search, it is best to discuss your future plans with a Dominion Lending Centres Mortgage Professional. This will ensure you receive accurate information to understand the specific requirements your potential property might require. Seeking expert advice early on will also give you ample time to find the right fit! This will also ensure you can submit a full financing review before subject removal on a purchase.