CMHC and Genworth will be increasing their premiums, effective May 1, 2014. This increase will only effect new mortgage applications, not existing insured mortgages through the two provides.
The overall dollar amount increase will range depending on the mortgage amount, but the premium added to mortgages with 5% down is 3.15%, 10% down will see 2.40% added to the mortgage amount and a buyer putting down 15% will have additional 1.80%. Those amounts can equal a large sum of money upfront, but on a monthly basis it’s a very nominal amount. I don’t foresee this being a driving force to increase sales in the next 34 days. The following are examples of how the increase in insurance premiums effect ones monthly mortgage payment at 5% and 15% down.

95% Loan-to-Value, 5% down

Loan Amount         $150,000    $250,000    $350,000    $450,000
Current Premium    $4,125        $6,875       $9,625       $12,375
New Premium         $4,725        $7,875       $11,025     $14,175
Additional Premium  $600         $1,000       $1,400        $1,800
Increase to Monthly Mortgage Payment  

                             $3.00         $4.98        $6.99         $8.98

Based on a 5 year term @ 3.49% and a 25 year amortization

85% Loan-to-Value, 15% down

Loan Amount        $150,000    $250,000    $350,000    $450,000
Current Premium   $2,625        $4,375       $6,125        $7,875
New Premium        $2,700        $4,500       $6,300        $8,100
Additional Premium  $75           $125          $175          $225
Increase to Monthly Mortgage Payment    

                           $0.37          $0.62         $0.87         $1.12

Based on a 5 year term @ 3.49% and a 25 year amortization
         
As it stands right now, Canada Guaranty is the only Canadian mortgage insurer that has not planned to raise their premiums.

Hello, The following is a column I wrote the back in April 2012…I keep referring to it. And wanted keep you updated as to what is currently happening in the marketplace.

Fixed (rates) – not fluctuating or varying; definite

When it comes to your mortgage, don’t you wish you had a reliable physic or crystal ball that could predict the direction the fixed rates were heading? Well, good news, you do…kind of! The Canadian Bond Yield is essentially your crystal ball. By following the bond yield you are able to, within reason, estimate the lenders rates. The fixed rate is generally 1.5-1.75% higher than the bond yield. Once you see the bond yield fluctuate 20 basis points (0.20%), it’s likely the rates will change within 7 days. If you want to make your own market predictions, to go. With today’s fixed rates currently sitting at an all time low, it’s now time to take back control of your personal finances. The banks have benefited for years, now it’s your turn! Contact me to discuss all your options.

This was published on investing.com yesterday (Jan 22, 2014). If you are in the market, now might be the time to consider. The spread is a bit high right now for 2.99%, but it might not be far away!

http://www.investing.com/rates-bonds/canada-5-year-bond-yield

Cheers,

Michael Hallett, Mortgage Expert

Dominion Lending Centres

604 616 2266

mhallett@dominionlending.ca

michaelhallett.ca

@Hallettmortgage

DREAM TODAY. OWN TOMORROW.

March 2014 OSFI will presented to the public for comment, here is the enitre article.

One casualty of new restrictions could be 30-year mortgages

ROBERT MCLISTER

Special to The Globe and Mail

Published Monday, Nov. 25 2013, 7:00 PM EST

Since 2008, regulators have been trying to contain housing risk by piling on new mortgage rules, and bringing back some old ones. So far, the housing market has yet to crack under the weight of those policies.

In fact, home prices just keep reaching record highs. And each month they do, policy makers get more and more nervous about overextended borrowers.

“We have noticed that there has been a shift in the marketplace to offer more 30-year amortizations,” chief banking regulator Julie Dickson said Monday at the mortgage industry’s annual conference in Toronto. “About half” of new borrowers with down payments of 20 per cent or more are choosing 30-year amortizations, she added.

That concerns Ms. Dickson, who cautions, “Borrowers need to understand what they’re getting themselves into.” She said people need to “think about the leverage [they’re] taking on,” especially if a 30-year amortization is the only way they can afford their home.

A 30-year amortization potentially means extra years of making mortgage payments and up to 23 per cent more interest over the life of the mortgage. (I say “potentially” because borrowers have traditionally paid off their mortgages in 30 per cent less time than their original amortization, according to the Canadian Association of Accredited Mortgage Professionals.)

If regulators do decide to restrict 30-year amortizations, they could either:

• eliminate them altogether

• allow payments at a 30-year amortization, but make borrowers prove they can afford a 25-year amortization, or

• Put restrictions on those getting a 30-year amortization (like higher credit scores, higher down payments or lower debt ratio limits.)

Those latter two options would at least give strong borrowers flexibility to divert mortgage payments to better sources – like paying down high-interest debt, making investments, financing education, building a small business and so on.

But even if banks are banned from selling 30-year amortizations, there may still be a place to get them: credit unions.

Most provincial regulators have seen no need to impose OSFI’s full slate of mortgage rules on credit unions.

“At this point and time there is no plan to do anything to change any of the [mortgage] regulations…” said Andy Poprawa, CEO of Ontario’s credit union regulator.

“Credit unions have traditionally been very conservative,” he said. “When credit unions lend money on a 30-year mortgage, they’re also taking into account other debts” and other prudent underwriting criteria.

“Because credit unions are smaller than the large banks, they must be very very careful how they utilize their capital. They can’t afford to have large delinquencies.”

Ms. Dickson doesn’t seem overly concerned about credit unions’ impact on market risk, noting that, “the vast majority of mortgage lending is coming from the [federally] regulated sector.”

On top of amortizations, OSFI is also “focusing on total debt servicing and gross debt servicing.” The regulator is paying special attention to borrowers with high debt ratios and low equity or low credit score.

In addition, OSFI is recommending new restrictions for mortgage default insurers like CMHC. Those proposals, contained in “Guideline B-21,” should be released for public comment by March, 2014, Dickson says. She assures that “any future changes to [mortgage] guidelines” will be put up for public comment before implementation.

It looks like fixed rates on are on the move again. But does that mean you should absolutely 100% opt for a fixed mortgage. Nope, I don’t think so! Weigh the pros and cons! Previous suggestions was that the prime lending rate of 3.0% would go up in late 2014 or early 2015 and now we’re seeing 2016 become a more popular opinion. This is great news for those borrowers that are able to chose the variable rate. I did a quick, easy and loose payment breakdown for to help you see the difference. Which provides more security? Which saves you money? Which pays more principal? Answer…VARIABLE, see below!

5 yr Variable rate mortgage = prime – 0.40% (prime has been 3.0% since September 29, 2010)

5 yr Fixed rate mortgage = 3.45%

FIXED vs VARIABLE — Based on $300,000 mortgage utilizing a  25 yr amortization schedule. The Variable rate mortgage requires you to pay approximately $43,000 in interest over a 5 yr term while the Fixed pay is around $48,000. That’s a $5,000 savings, which could and should be applied directly back to the outstanding principal amount.

2014 – Variable rate is 2.60% and Fixed is 3.45%

–          Monthly Payment is $1359 or $1490

2015 – Variable rate is 2.60% and Fixed is 3.45%

–          Monthly Payment is $1359 or $1490

2016 – Variable rate is 2.85% and Fixed is 3.45% (presuming Prime now increases to 3.25% midyear)

–          Monthly Payment is $1397 or $1490

2017 – Variable rate is 3.10% and Fixed is 3.45% (presuming Prime now increasing to 3.50%)

–          Monthly Payment is $1435 or $1490

2018 – Variable rate is 3.60% and Fixed is 3.45% (presuming Prime now increasing to 4.00%)

–          Monthly Payment is $1514 or $1490

Borrowers that opted for the variable rate over fixed have saved $5,000. By applying it right back to the outstanding balance they have made it easier to renew their next mortgage and protected themselves from rate increase.

Note the Bank of Canada only meets to discuss the Prime lending rate on 8 pre-determined days each year http://www.bankofcanada.ca/monetary-policy-introduction/key-interest-rate/schedule/?page_moved=1 Variable rates can be locked into a fixed term at any time if you foresee your saving being expunged.

In the past 10 years there has been no other 3 year period where the prime lending rate has not changed. Since October 2010 prime has remained at 3.0%. My increase prediction amounts were based on documented increases that happened 3 times in that same year. Prime was adjusted at increments of 0.25% or 25 basis points each time.

Variable rate mortgages also offer a much less and attractive pre-payment penalty is you ever need to alter the terms of your mortgage. Variable rate borrowers will only ever incur a 3 month interest penalty. Fixed mortgages carry a much more complicated pre-payment penalty. The lender will calculate an interest rate differential (IRD) or 3 month interest penalty, whichever is high…generally it’s the IRD that will ruin your day!

Having said all that above, each and every mortgage application is different and needs to be reviewed and qualified using the federal lending guidelines. Circumstances might require applicants to opt for a fixed. For an individual review please contact me to discuss your options.

 (DISCLAIMER – These numbers are merely an example, I am no economist, analyst or master predictor, I just put them together with the resources I have.)

With the ever changing landscape for secured finances (leverage against real estate) it’s impossible for the average person to keep all the policies straight between all the chartered banks, credit unions and the security back mono-line lenders. The one sector of borrowers that are finding it harder and harder to place their mortgages are business for self people stating their income or using their equity. More and more individuals are turning to alternative (or B) lenders to get their financing done. The only thing stopping all these people from jumping into the ‘B’ pool without hesitation is the rate. At first it looks daunting with a difference of up to 1.50 basis points, but the number prove that it’s the exact opposite. I often hear, “But I am a long time business owner with great credit and great assets…I want the best rate!”

What if paying a higher interest rate meant saving thousands on your income tax? Would you be proud to share that information around the water cooler? Here are the basic numbers…

Tax Rate vs Interest Rate

* Business For Self 

*Average BC mortgage

** For ease of comparison to BC yearly tax rate of 1 year term has been used. Rates are approximations for example purposes.

The Savings

$23,299 income tax savings

– $4,662 more interest charged on ‘B’ or alternative mortgages

$18,637 net savings

The flexibility of being self employed comes with its many pros, paying a slightly higher interest rate is not a con. You should be taking every opportunity to tell other BFS colleagues and friends that you saved $18,637.

For more information about my exclusive lender for Business For Self income earners contact me.

If you are planning on buying a new home over the next two years, then you need to know about the 2% BC Transition Tax.

It is a new tax that comes into effect on April 1, 2013. It will apply to the sale of new residential homes that are 10% or more complete as of April 1, 2013. The 2% BC Transition Tax will end on March 31, 2015.

Source: BCREA PST TransitionRules website www.bcrea.bc.ca/government-relations/pst-transition-rules

The 2% BC Transition Tax applies to the full price of a new home, which is 10% or more complete, where ownership or possession is on or after April 1, 2013, but before April 1, 2015. The 5% GST also applies to the full price of a new home, where ownership or possession is on or after April 1, 2013.

With the end of the HST and the return to the PST/GST system, the BC government chose to introduce the 2% BC Transition Tax as a way, in their words, “to ensure the equitable application of tax for purchasers of new residential homes currently under the HST system” and after April 1, 2013 when the province returns to GST on new residential homes. The government also wishes to replace some of the revenue lost through the return to the PST.

BC’s portion of the HST will no longer apply to newly built homes where construction begins on or after April 1, 2013. Builders will once again pay 7% PST on their building materials (construction inputs). The provincial government asserts that on average, about 2% of the home’s  final price is embedded PST that builders pay on their building materials.

For newly built homes where construction begins before April 1, 2013, but ownership and possession transfer afterwards, purchasers will not pay the 7% provincial portion of the HST. Instead, purchasers will pay 5% GST and the 2% Transition Tax on the full house price. The Transition Tax rebate for builders (sellers) recognizes that the builder will not be able to claim input tax credits on the PST paid on building materials acquired after March 31, 2013. The rebate is available where both of the following conditions are met:

• The 2% BC Transition Tax applies to the sale of new housing; and
• Construction or substantial renovation is at least 10%, but not more than 90%, complete before April 1, 2013.

The Beacon score or credit score determines the probability that you will pay your bills on time and in full. Beacon scores are sometimes referred to as FICO scores, and both names are from the credit bureaus that developed the scoring. Keeping track of this important number is vital. Inquiries to your score are recorded and tracked on the credit report.

Credit Inquiries

• Every time that you, a creditor or potential lender checks your credit report, a record is created of the event. This record appears on the bottom of the credit report. There are two types of inquiries, soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull soft inquiries when marketing pre-approval offers. A hard inquiry happens when submitting loan or credit card applications. A hard inquiry is one that is triggered by the applicant; a lender cannot process a hard inquiry without your permission. There is a process to have non-authorized credit inquiries removed from your report.

Affects on Your Score

• Soft inquires do not affect the credit score. A consumer can pull their own credit score as many times as they wish without repercussions. Hard inquires affect the score slightly. These inquires are included in the calculation done for credit scoring. Usually they account for 10% or less of the overall score. Multiple inquires that occur in a 14-day span are counted as just one inquiry. This helps those who are credit shopping (mortgages, personal loans etc…) and need to have their credit pulled several times. Multiple inquiries are rarely the reason that people are denied credit unless the score was borderline to start with.

Recording Inquiries

• Recording the number of inquires a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit. This can be a precursor to someone facing credit difficulty. Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recoding inquires is identity theft. Hard inquires not made by you could possibly be an identity thief opening accounts in your name.

Time Frame

• Inquires are required to remain on the credit report for at least a year. Most creditors, however, disregard any that have been on the report for over six months. Hard inquires remain on the report for two years. Soft inquires only appear on the report that you request from the credit bureaus and will not be visible to potential creditors. Hard inquires appear on all credit reports. All inquires disappear from the report after two years.

Who Has Access

• Only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked. For example, if a landlord uses Experian to check the creditworthiness of an applicant, the credit check will only appear on Experian’s report, not TransUnion or Equifax. To limit the number of soft inquires made on your credit report, contact the credit reporting agencies and request that they remove your name from marketing distribution lists.

Contact me at 604 616 2266, mhallett@dominionlending.ca @Hallettmortgage www.michaelhallett.ca

DREAM TODAY. OWN TOMORROW.

Most real estate deals are fairly straightforward and both a lawyer and notary will prepare the documents for you. If you are buying a home, they will: conduct a title search, obtain tax information and any additional info to prepare a Statement of Adjustments. Then they will prepare closing documents, including a title transfer, mortgage, property transfer tax forms and forward them to the seller’s lawyer or notary for execution.

After you sign your papers, the lawyer or notary will register the transfer and mortgage documents and transfer funds to the seller’s lawyer or notary. Sometimes, people may have more complicated transactions, so you will have to decide for yourself what your situation is. If something goes wrong with your transaction, a notary cannot represent you in court, like a lawyer can. Notaries also cannot represent you in any kind of disputes.

Notary also cannot advise you on legal matter, for example, if you go to a notary to convey a real estate deal, and you ask questions like “I think my neighbour’s fence is on my land, what should I do?”, the notary cannot give you advice on what your recourse is.

In terms of fees, they are not that different these days. You won’t find a big difference in price for their services.

If you are unsure of which one to use, it’s always a good idea to phone a notary and a lawyer to describe the services you need and then decide from there.

ITS NEVER TOO LATE TO ADJUST YOUR SAVINGS.

DREAM TODAY. OWN TOMORROW.

Lets face it, everyone wants the lowest rate possible for their mortgage.  However, is the lowest rate always worthwhile?  Let’s take a look at an example:

Bob Smith is a Business owner in Vancouver.  He has a modest business that is experiencing growth year after year.  Bob enjoys the many perks of being a business owner, especially the tax breaks that come along with it!  Since Bob is able to work with his certified accountant, and considerably write down his income, he often saves thousands of dollars a year on taxes. 

Bob would like to purchase a new home.  He has 20% down payment to place on a home, and knows that he grosses more than $100,000 per year in his business.  However, since he currently writes down his income to $20,000/year, I have just informed him that he will need to state his income with a ‘Non Prime’ lender for approval.  

Now if Bob claimed $100,000/year for the last 2 years — he may qualify for the best rate out there!  However, lets look at what that really means: 

Bob has saved  $23,299/year because of the advantages the government has allowed for self employed borrowers. Now lets compare the interest on a ‘typical’ verified-income loan, and a ‘non prime’ stated-income loan. 

 ** For ease of comparison to BC yearly tax rate– 1 year term has been used.

Rates are approximations for example purposes.**

Yes, Bob is paying $2,664 more in interest per year, but with his tax savings of $23,299/year, he is actually saving $20,635/year more than the typical ‘verified-income’ Employee that was able to receive a 2.99%!

Choosing Your Mortgage Amortization

Selecting the length of your mortgage amortization period – the number of years it will take you to become mortgage free – is an important decision that will affect how much interest you pay over the life of your mortgage. While the lending industry’s benchmark amortization period is 25 years, and this is the standard that is used by lenders when discussing mortgage offers, and usually the basis for mortgage calculators and payment tables, shorter or longer timeframes are available – to a maximum of 35 years.

The main reason to opt for a shorter amortization period is that you will become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced. A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value.

While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you.

I will be able to help you choose the amortization that best suits your unique requirements and ensures you have adequate cash flow. If you can comfortably afford the higher payments, are looking to save money on your mortgage or maybe you just don’t like the idea of carrying debt over a long period of time, you can discuss opting for a shorter amortization period.

Advantages of longer amortization

Choosing a longer amortization period also has its advantages. For instance, it can get you into the real estate market sooner than if you choose a shorter period. When you apply for a mortgage, lenders calculate the maximum regular payment you can afford. They then use this figure to determine the maximum mortgage amount they are willing to lend to you.

While a shorter amortization period results in higher regular payments, a longer amortization period reduces the amount of your regular principal and interest payment by spreading your payments out over a longer timeframe. As a result, you could qualify for a higher mortgage amount than you originally anticipated. Or you could qualify for your mortgage sooner than you had planned. Either way, you end up in your home sooner than you thought possible.

Again, this option is not for everyone. While a longer amortization period will appeal to many people because the regular mortgage payments can be comparable or even lower than paying rent, it does mean that you will pay more interest over the life of your mortgage.

Still, regardless of which amortization period you select when you originally apply for your mortgage, you do not have to stick with that period throughout the life of your mortgage. You can always choose to shorten your amortization and save on interest costs by making extra payments when you can or an annual lump-sum principal pre-payment. If making pre-payments (in the form of extra, larger or lump-sum payments) is an option you’d like to have, your mortgage professional can ensure the mortgage you end up with will not penalize you for making these types of payments.

It also makes good financial sense for you to re-evaluate your amortization strategy every time your mortgage comes up for renewal (at the end of each term of your mortgage, whether this is 3, 5 or 10 years, etc…). That way, as you advance in your career and earn a larger salary and/or commission or bonus, you can choose an accelerated payment option (making larger or more frequent payments) or simply increase the frequency of your regular payments (ie, paying your mortgage every week or two weeks as opposed to once per month). Both of these features will take years off your amortization period and save you a considerable amount of money on interest throughout the life of your mortgage.

DREAM TODAY. OWN TOMORROW.

Michael Hallett 604 616 2266 or michaelhallett.ca