Will I need a down payment to buy a house?
Posted on Jan 15, 2018 in Mortgage Market Updates and News
This is a question I get asked all the time. Saving for a down payment is such a challenge; especially in markets like ours where rents have gotten incredibly high, it makes finding money to put aside each month even more difficult.
So do you need a down payment to buy a home? The short answer is yes. No matter which lender you go with, whether you go through a bank or a mortgage broker, you will need to have a down payment of some sort. But let’s talk about amounts.
The standard down payment that’s required is 5% if you’re planning to live in the house (even if you’ve owned before and are not a first time home buyer). So on a $200,000 home, you’d be looking at needing a $10,000 down payment. But! Are you a first time home buyer? Because if you are, there are a number of programs available for you, specifically one that is a huge help for your down payment.
‘The BC Home Buyer Mortgage and Equity Partnership’ is basically a down payment loan. It provides you with up to half of your down payment (with some restrictions). So if you need $10,000 for your down payment, the program above will lend you $5,000 of that leaving you with just $5,000 to come up with on your own.
So as a first time home buyer in BC right now, you need to come up with about 2.5% of a purchase price on your own to buy a home. Your portion of the down payment *can* come from a gift or loan from a family member, or several other sources. That said, the more money you can show a lender you’ve been able to save, the stronger your application is, and the more likely you are to actually be approved. Lenders do realize it’s a difficult time to get into the market so programs like the down payment loan, are there to be used. Don’t let needing them discourage you from applying for a mortgage, just know it’s always better if you can show savings as well.
If you’re wondering if you’ll qualify for a mortgage based on your current situation please give me a call or email to sit down and see where you’re at. There is no charge to you for my services.
For more information on down payment rules see my earlier blog post http://www.portalbernimortgage.com/blog_article.php?pid=882
TMG The Mortgage Group Canada Inc.
RE/MAX Mid-Island Realty
Worried about a tax increase?
Posted on Jan 6, 2018 in Mortgage Market Updates and News
Did your assessed value increase this year? If you've been sitting at home worrying about a property tax increase because your BC Assessment increased, this is the blog post you need to read.
There are two pieces of the puzzle when it comes to your property taxes being calculated. There’s your assessment, and the City’s tax rate. Typically when people’s assessments see large increases, they start to panic that their taxes are going to skyrocket. But that’s just not how property taxation works.
Municipalities run on largely the same budget year over year. Most common are increases in the 2-5% range to cover minor program changes and cost of living increases. So if everybody’s tax assessments increase by 20%, the City doesn’t just collect 20% more tax that year to do what they want with.. Sure, that would be nice in those increase years, but how would they operate in years when assessments decreased? It’s just not a system that would work in maintaining a stable government. Instead of flowing with the increases and decreases, municipalities set their tax rate each year at what it needs to be to collect the correct amount of taxes.
Here’s an example.
If a municipality has properties in their boundaries that value a total of 300 million dollars, and their annual operating budget is 30 million, they set their tax rate to 10% so that they can collect the 30 million they need to operate.
If the next year, the average property assessment increases by 15%, then that municipality now has $345,000,000 in assessments. If they left their tax rate the same, they’d collect $34,500,000 giving them an extra 4.5 million dollars to do what they want with (wouldn’t that be nice as a municipality).
But that’s not how it works, and that would leave all their residents paying large increases in their taxes. So what happens? They adjust their tax rate down to the amount it needs to be to collect that 30 million that they need to run. In this case, their tax rate would drop from 10% down to about 8.7% and everybody who had a 15% assessment increase would pay the exact same taxes.
Those who had increase larger than 15% would pay a bit more, and those with increases less than 15% would pay a bit less than the previous year.
Property assessment and taxes are all about average change. So what’s important is not how much your assessment has gone up, but what percentage your assessment has gone up relative to the average home in your area.
In Port Alberni this year BC Assessment just released that the average home went up about 21% (City of Port Alberni). So the first step to figuring out if you should be worried about your taxes is looking at if your house went up more or less than that. If your house went up less or about the same, you’re in good shape. It’s when you have a larger increase than average that you'll see an increase in your taxes.
The last piece of this I want to touch on is municipal budget increases. The example above is simplified just to get the understanding of how the system works across. But in reality, municipalities wouldn’t operate on 30 million year over year. They’d increase their budgets each year to account for operating increases, new programs, new capital projects like pools, beautifying projects, etc. The City of Port Alberni has committed to 3% increases for the next 4 years to focus more strongly on infrastructure renewal, roads, sewers, buildings, etc. This is subject to change each year when the City reviews their budget.
Budget time begins in January each year and includes budget deliberation meetings, public input meetings, e-town hall meetings, etc. All budget meetings are open to the public to attend, and are streamed online and stored on the City's website. If you’re wanting to have a say in the spending and direction of our community, keep an eye on portalberni.ca/budget for meeting schedules and information.
If you think your assessed value is higher than the value of your house and would like a Realtor to give you an idea of what your house is worth please give me a call or email and I'd be happy to check it out for you. You have until the end of January to appeal your assessed value.
Thanks for reading.
Mortgage Broker and Realtor
TMG The Mortgage Group Canada Inc
RE/MAX Mid-Island Realty
All about the Mortgage Changes
Posted on Oct 22, 2017 in Mortgage Market Updates and News
If you’ve been following the real estate and mortgage news, you’re likely already aware that there are some significant mortgage changes coming in the new year. This post gives a breakdown of those changes and an idea of how they may effect you.
Last October, the Office of the Superintendent of Financial Institutions (OSFI - the rule-maker of lending guidelines) announced and implemented probably the most drastic set of mortgage regulations changes we’ve ever seen. Those guidelines were announced October 3rd and took effect October 17th, 2016. This was a very challenging time in the mortgage world, having such a short time for people effected to handle the impact. Those changes saw the implementation of a ‘qualifying rate stress test’. This meant that for the first time, borrowers needed to qualify for their mortgages at a higher rate (ie higher payment) than they were going to pay. Resulting in them qualifying for a smaller mortgage than they previously did, on their same income. It was a big shock, to first time home buyers especially who often max out what they can qualify for in order to be able to get into the market. In the long run, I think it was a positive change for the safety and security of our real estate industry. At the end of the day, it was about making sure people could truly afford their mortgages.
Last year’s changes were aimed at what the government considers our higher risk borrowers; people with small down payments. This year’s mortgage changes however, are aimed at everybody else. They’re aimed at people who have large down payments or equity in their homes they may want to access. This is where you should pay attention…
If you’re thinking of purchasing a home or refinancing your current mortgage to pull some equity, these changes will reduce the amount you’re able to borrow based on your income by about 20%. This is a major change.
This means if you had a family income of $80,000/year and could previously qualify for a mortgage of roughly $500,000, after this change you’ll only qualify for about $400,000. *Note these are rough qualification numbers.
It’s a major change, and has a huge impact on people’s borrowing power, but there’s always good news. In this case, the good news is that OSFI listened to concerns with how they implemented last year’s mortgage changes so quickly and this time around they’ve given a more reasonable timeline. If you’re thinking of making changes or purchasing, you’ve still got time to do that as the changes don’t take effect until January 1, 2018. The sooner the better to get started though as lenders may be overwhelmingly busy as an influx of borrowers try to complete their mortgages prior to the deadline.
Call or email me today if you’d like to discuss how these changes will impact you.
What is CMHC insurance and what do I need to know about it?
Posted on Aug 14, 2017 in Mortgage Market Updates and News
CMHC or Canada Mortgage and Housing Corporation, is a topic I constantly get questions about. So what is CMHC? When is it required? What are the benefits? What are the costs? When do you pay it? What do you need to know.. Here's everything you as a mortgage borrower, need to know about CMHC.
What is is and when do I need it?
CMHC is mortgage default insurance. It's required on every purchase mortgage in Canada where the purchasers are putting less than 20% as a down payment. For first time home buyers, putting less than 20% down (typically 5%) is the norm. Default insurance is required regardless of where you buy, who your lender is, how strong your application is, etc. It's simply a requirement of putting a small down payment.
What is it?
Now that we understand generally what CMHC is, it's important to understand what it is not. A lot of clients hear insurance and start to make assumptions about what they're covered for, so I like to be clear. It's not house insurance. You will still need to insure your home for fire, earthquake, content loss, etc. It's not life insurance. You will not be covered through CMHC in any way if you or another borrower on your mortgage pass away, become disabled, etc. Default insurance covers the lender (this is a really important part - the lender), if you default on your mortgage, your house is foreclosed, and the lender loses money on the sale, and associated costs. It's not an insurance to cover you. It's an insurance that you pay, to protect your lender. In other words, it allows your lender to have very little risk as if the mortgage isn't paid, they'll generally recover their losses from CMHC. So what it does do, and although I've made it sound a bit grim here's the upside, it allows lenders to lend to borrowers with very small down payments. Wouldn't it be awful if we had to save 20% before we could purchase a home? CMHC gives us the opportunity of being able to buy without having to save large down payments.
Who else offers it?
I keep saying CMHC, but in reality, your mortgage may not be insured with CMHC. CMHC is just the most well known insurer. There are two other insurers in Canada who can insure your mortgage, Genworth and Canada Guarantee. They all cost the same and follow generally the same guidelines, but different insurers definitely tend to be more flexible on different situations so having all 3 is definitely advantageous to borrowers.
Do I have to be approved for it?
Yes. Insurers review and approve each mortgage application. You likely won't know your mortgage has gone through CMHC approval as it's a step you're not involved in. Lenders typically first review your application and preliminarily approve it, then they send it to an insurer for their approval. If they can't get one of the 3 insurers to approve it, your mortgage is declined. Insurer approval can often be the most difficult approval to get and borrowers some times end up feeling frustrated that the lender was okay with their application, and even though they met the insurer guidelines, they were still declined. The insurers have the final say on who is approved, and this can definitely be challenging and frustrating. Not all lenders deal with all 3 insurers. In fact most lenders deal with only Genworth and CMHC, so sometimes it's a challenge to match up an application that is suited to Canada Guarantee, with a lender that works with CG as well.
What are the costs?
Default insurance is not cheap, and rates have been on the rise the past few years as well. The fees are standard and don't vary lender to lender. They do vary based on down payment type (saved and gifted makes for lower fees than a borrowed down payment) and also based on down payment %. Insurance rates increase with each 5% increment of your down payment. See rate table below.
One important thing to note, is that default insurance fees are included in your mortgage, not paid upfront. So this is not a cost you have to save for when you buy your home additional to your down payment. It's also only paid once for the most part. You pay it when you buy your home, but you don't pay it again when you renew your mortgage in 5 years. There are situations where you'll pay a 'top up percentage' which would be if you were purchasing a new more expensive home and increasing your current mortgage. In which case you'd only pay it on the new funds borrowed.
What else do I need to know about CMHC?
That should generally cover it. Your mortgage broker should be very familiar with default insurer guidelines, options, etc. If your application is strong, you'll likely never even hear about insurer approval except for when your broker is explaining the insurance cost and what it represents.
As always, if you have any questions about mortgage approvals (purchases, refinances, renewals) or real estate purchases, please feel free to call, email, or text.
Mortgage Broker and REALTOR®
Posted on Aug 13, 2017 in Mortgage Market Updates and News
Quick Tips to Improve Your Credit
Posted on Apr 27, 2017 in Mortgage Market Updates and News
It's no secret credit is important. Having a low credit score can prevent you from a doing things; from setting up a cell phone account to getting a mortgage. Credit is such a huge part of life nowadays, and everybody's been through something, so people often end up stressing a lot over their scores. The nice thing about credit that I've found, is everything is repairable.
Credit is the first thing we look at when going through a mortgage application. If a score is low, we're often stopped dead in the water before we can really even get going. The best time to start looking for ways to repair your credit is now, because it can take any where from a couple months, to a couple years.
Here are some quick tips to improve your credit, and as always, give me a call to go over it with you in person and help make a plan that works specifically for you.
Pay off any collections.
if you have collections showing on your credit bureau, it's important to get them paid off right away. Making payments on collections often only covers the interest and doesn't actually get to the debt owed, so it's vital to talk to your creditor about when your debt will be paid off with your current payments if you're making them.
Keep credit card and line of credit balances below 50% of the available limit.
This is a really important one that is not widely known. Using less than 50% of each credit card or line of credit you have available is very helpful to your credit. As soon as even one debt becomes high or maxed, your score starts to drop.
Make sure you don't miss payments by setting automatic minimum payments for credit cards.
Did you know you can set up automatic minimum payments for your credit cards so that you'll never miss one of those annoying $10 minimum payments? It's crazy how many people I see with derogatory marks on their credit bureau because they've missed a $10 payment, just out of forgetfulness. Most major credit cards give you the option on their website of setting automatic payments (even from a different bank). Then you know it's always taken care of.
Avoid letting companies pull your credit unless they're totally necessary.
Each time your credit is pulled it drops your score a few points. A few points here and there shouldn't make an impactful difference on your score, but if you pull it too many times in a short period of time, it can start to effect you more heavily. Places like Telus, Fortis, Hydro, etc will often allow you to pay a small deposit, rather than having a credit pull done. This can save an unnecessary pull if you're in a time of trying to repair your score.
Avoid taking on new debts
That pre-authorized credit card with a low introductory rate may seem appealing when you get the letter in the mail, but if you're trying to increase your credit score, opening new debts (car loans, personal loans, lines of credit, credit cards, etc) will likely reflect badly. Credit pulls and new debts (especially when there are a couple of each around the same time) give the illusion you're shopping for credit and therefore having money issues.
Everybody's situation is different so this isn't meant to be a guide that will necessarily build every person's score to where they need it, but rather some quick tips that if followed, will have a positive impact on your credit score. The great thing about credit is in a lot of situations, making some small adjustments can have a quick impact. If you're looking for a home, the sooner you sit down with me and review your credit report, the better.
Getting ahead with low mortgage rates
Posted on Apr 9, 2017 in Mortgage Market Updates and News
It's no secret we've been going through an extended period of unusually low interest rates. While on the surface it seems great for buyers and people looking to refinance their mortgages, there's a 'dark side' if you will, to what the past few years have created. In my career as a mortgage broker in Port Alberni, I work with a lot of first time home buyers. Likely because I'm fairly young :) I tend to attract younger clients. The concerning trend I've seen over the past few years is more and more people who think these rates are normal. Why is that concerning??? Well, a good chunk of people buying homes today (not my clients) don't fully understand the mortgage process. They either don't think about what happens at the end of their 5 year term, or don't realize and account for the fact that rates could be substantially higher when they go to renew their mortgage. People are increasingly often trying to buy to the maximum of what they can afford, while concurrently not working in jobs that tend to have increasing incomes. So when rates begin to increase, and people's 5 year mortgages mature, we could have a lot of people surprised, and possibly not able to afford, their new mortgage payments.
The good news? The Federal Government recently addressed this issue by enacting rules that created a 'qualifying rate'. The qualifying rate means we have to calculate the mortgage people can qualify for at a higher rate (a more traditionally normal rate) than what they will actually be paying on their mortgage. Currently the qualifying rate for a mortgage with less than 20% down is 4.64%. Typical mortgage rates right now are substantially lower at around 2.5% for 5 year fixed rates.
So how can you take advantage of unusually low interest rates? Make your mortgage payment based on the qualifying rate (4.64%), rather than the contract rate (2.5%). This of course doesn't change the actual rate you're charged on your mortgage (still the very low 2.5%) but it allows you to get used to a payment that is more inline with normal expenses for a home in your pricerange. You'll pay your mortgage balance down faster, and also be comfortable with a higher payment if rates happen to increase during your 5 year term and you end up renewing at a higher rate.
Here's an example of how you'll save:
Mortgage amount: $250,000
Interest rate (5 year fixed): 2.5%
Amortization: 25 years (meaning it will take you 25 years to pay off your mortgage)
Monthly payment: $1120
To qualify for this mortgage you would actually need to be able to afford a payment of $1403/month (based on the 4.64% qualifying rate).
If you made your minimum payment ($1120/month) on the above mortgage, you'd end up with an outstanding balance after your 5 year term of about $211,500. If you increased your payment to the payment you need to be able to afford to qualify for the mortgage ($1403/month), your outstanding balance after 5 years would be about $193,500. This puts you $18,000 ahead on your mortgage and sets you on a path of paying your mortgage off in 18 years (if you continue with increased payments) rather than 25 years.
Have questions about your mortgage? I'm happy to help.
In case you thought a higher qualifying rate was the worst of the mortgage changes...
Posted on Oct 5, 2016 in Mortgage Market Updates and News
Are you just starting to take in the fact that you're going to be able to qualify for 22% less of a mortgage come October 17th? Well, unfortunately that's not the worst of it. Another set of changes, announced at the same time this past Monday, have gotten much less media attention, but will potentially have even more of an impact.
Beginning November 30th (but in reality effective immediately with a lot of lenders) a major set of changes is going to take effect with low ratio mortgages (mortgages where the loan to value is less than 80% - ie safer mortgages with at least 20% equity). Let me back up a bit before I explain this change because there's a whole world of mortgage process that the average consumer likely does not know exists.
Here's the basics that most people are aware of. If you purchase a home with less than 20% down, you pay CMHC default insurance to protect your lender if you default, this is a requirement. In most cases, if you put a 20% or larger down payment, you don't pay CMHC. It makes sense, you put a larger down payment so your mortgage is safer to the lender, right? Here's the kicker that most people are unaware of though, your mortgage (more often than not) is still CMHC insured. You're just not paying the fee; your lender is. The majority of mortgages in Canada are insured this way, it's called portfolio or bulk insurance.
Okay, so you've got the very basics around bulk insurance now; fast forward to last Monday. The government announced a sweeping set of changes to low ratio CMHC insured (bulk insured) mortgages that most people have not heard about. Effective November 30th, bulk insurance will no longer offer the following:
- Rental properties
- 30 year amortizations
What this means is that the lenders who operate exclusively with bulk insurance, will no longer offer these services. This may not sound like a big deal, but you'd probably be surprised how many lenders bulk insure 100% of their business. Those lenders are also the most competitive typically in terms of rates, product flexibility, penalties to break a mortgage, etc. To be perfectly honest, these lenders who operate exclusively on bulk insurance are the lenders I do about 75% of my mortgages with, because they offer the best rates and products for clients.
Once these changes take effect, a huge portion of business is going to be unavailable to these lenders. That means if you want the lowest rates, best products, and penalties that wont crush you financially if you need to break your mortgage early, you need to be purchasing an owner occupied property. Not refinancing, not pulling extra funds to renovate, not purchasing a rental property. It means that it's more important now than ever before to make sure you are with a competitive lender now, because your opportunity to switch later will be very limited.
These changes are going to crush competition, force people to mortgage with banks and credit unions and create monopolies that will likely result in higher costs of borrowing, reduce rental availability by making it more difficult and less affordable for rental properties to be purchased and put on the market, and make rentals more expensive for the people who can no longer afford to buy due to the last set of mortgage changes (see Mortgage changes will have huge impact). Many lenders have already announced higher rates for refinances, discontinuation of rental property programs or higher rates for rentals, effective either immediately or mid next month.
These changes are going to give banks and credit unions (who represent a very small portion of our lender options) a monopoly over certain types of lending. Lack of competition leads to higher costs to consumers and more profits for big banks. Certainly not the result we were promised by the Federal Government. Given that I'm in government as a City Councillor in Port Alberni, I'm not one to believe in government conspiracies to benefit banks as many are suggesting this set of changes is. What I believe this is, is a huge oversight by our federal government that comes with some very concerning unintended consequences. I will be doing all I can to convince the government to reconsider. Please do the same. Call your local MP today.
TMG The Mortgage Group Canada Inc.
Mortgage changes will have huge impact - Please Share
Posted on Oct 3, 2016 in Mortgage Market Updates and News
If you've been shopping for a home the past few months, now may be the time to move on your purchase.
In an effort to keep the housing and mortgage market as stable as possible, the Federal Government announced new regulations for qualifying for mortgages this morning. A few new rules were announced, but at the forefront for most of my clients and first time home buyers in general, a major change in how we qualify 5 year fixed rates will be the most important.
Without going into too much details, here's the gist...
Currently, 5 year fixed rate mortgages require less income to qualify for than variable rates or shorter term mortgages. Because of that, and the fact that lenders typically offer the best 'deal' for 5 year fixed rates, they are by far the most common choice. This mornings announcement changed the rules so that all mortgages will be qualified on the same basis, increasing the rate that we qualify clients at for 5 year fixed rates (not increasing actual rates though). Here's how it breaks down:
To clarify - Actual rates have not increased. 5 year fixed rates remain around 2.39% with most lenders. 4.64% however, is the rate we'll be using to calculate payments to determine how much you qualify for going forward.
Looking at the positive side of things, this is a great move for the stability of our mortgage market. It's no secret rates are incredibly low, have been for a long time, but will not be forever. It's been a practice of mine as a mortgage broker for many years, to 'stress test' people's income/mortgage payment ratio with more 'realistic' interest rates. I always look to see, if rates went up to 5%, would you still be able to afford your mortgage. In a lot of cases, the answer has been no. That may sound scary, but 5 year fixed rates have been easier to qualify for for a reason; you have payment stability for 5 years. In 5 years, your mortgage balance will be lower, your income will hopefully be higher, and things will balance out even if rates are higher. But in a world where stable jobs with increasing incomes are harder and harder to come by, maybe this is a good move. It certainly makes for a safer market by reducing what often debt-loaded buyers can afford. But if this is in any way an effort to cool the overheated Vancouver Housing Market, it's a huge fail. If the government wants to do something about the Vancouver market, they need to do away with the 'New to Canada - 35% down payment = no income verification' program, but that's a blog post for another day :-)
What does the future look like? - I predict an incredibly busy next two weeks as buyers rush to make deals before their affordability drastically changes. Lenders will be overwhelmed, approvals will take longer, this will be frustrating as people try to get their deals signed off on before the changes take effect. Next we'll feel the slow down. Prices may drop as a lot of people will choose not to buy. We may begin to shift back into a buyers market. In the long run, first time home buyers will be hit hardest, and smaller, more affordable markets like Port Alberni, will likely benefit as buyers begin to put more importance on value for money and affordability.
If you're wanting an idea of how much these changes effect you, or you're wanting to buy in the next two weeks before the changes take effect, please call or email me to discuss your mortgage needs.
TMG The Mortgage Group Canada Inc.
Your road to mortgage freedom
Posted on Jun 4, 2015 in Mortgage Market Updates and News
Paying off your mortgage may be the best investment you can make. A survey conducted in 2013 by Canada Mortgage and Housing Corporation (CMHC) found that 68% of homeowners felt they could pay off their mortgage early. Last year a Scotiabank poll found that almost two-thirds of mortgage-holders agreed they could pay off their mortgage faster without impacting their lifestyle. Here are some ways to save some serious money and become mortgage-free faster. It only takes a few small steps and saves you thousands of dollars in the process.
Accelerate your payment frequency
This is popular. If you're making monthly payments on a $300,000 mortgage with a 3% interest rate, amortized over 25 years, it will cost you $125,920.44 in interest. By increasing your payment frequency to accelerated bi-weekly payments, you will shave nearly three years off of your amortization schedule, and save $16,058.57 in interest.
Round up your mortgage payment.
This is pretty painless. Every dollar counts when it comes to paying off your mortgage. If your accelerated bi-weekly mortgage payments are $543, consider rounding up to $600 instead. The extra $57 will save you thousands of dollars in interest over the term of your mortgage and you'll barely notice the difference in your monthly budget.
Refinance to a shorter-term amortization
You may be able to refinance into a mortgage with a lower amortization. Your payments will be higher on a 15-year loan, but perhaps not as high as you think, especially in the current low-interest environment.
Make lump sum payments
Adding just $1,000 extra to your mortgage per year will allow you to pay it off years sooner and, combined with accelerated bi-weekly payments, chip thousands of dollars off the interest you pay for your home.
A lower interest rate
With mortgage rates at all-time lows it doesn't hurt to negotiate a better rate. The difference between a 2.59% rate and a 3.2% rate adds up to thousands of dollars in interest over the remaining term of the mortgage.
Interestingly, the Scotiabank poll also showed that 21% of mortgage holders have not taken any steps to pay down their mortgage for the following reasons:
- Don't have available funds
- Have other payment priorities
- Don't know what steps to take