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Reverse mortgage – Some common misconceptions

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

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

COMMON MISCONCEPTIONS & OBJECTIONS:

I heard they were restrictive and bad for seniors.

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

The bank will own my house.

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

I’ll lose all my equity.

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

The costs are too high.

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

A line of credit is better and cheaper.

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

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

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

Why are the rates higher than a regular mortgage?

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

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

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

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

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

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

Michael Hallett

Dominion Lending Centres – Accredited Mortgage Professional

Spring Into Action: Refinance Your Mortgage With the Help of a Mortgage Broker

We sprung forward last earlier this month by changing our clocks one hour ahead. For some, their microwave and oven clocks are once again displaying the correct time since the last time we needed to adjust our clocks (in the Fall). Patience is a virtue – except for when it comes time to refinance a mortgage!

The Spring is a busy time for mortgage brokers across the country. We welcome this change in season knowing that we are in the best position to give families mortgages that make sense for them.

This is the time of year that banks begin to send out their mortgage renewal notices. Some people will simply sign the documentation sent over from their bank and take on a new mortgage at the rate the bank has suggested. However, this may not be the best rate for which you and your family can qualify.

What is a Mortgage Renewal?

A mortgage renewal is when the current terms of your mortgage come to an end and you sign on for a new mortgage term.

The time is now to spring into action, up to three months ahead of your mortgage renewal deadline. By shopping around for the best mortgage rate for your financial circumstances, you may save yourself thousands of dollars. To do that, you may want to consider working with a seasoned professional – your local mortgage broker.

The benefits of working with a mortgage broker to help find a mortgage solution that works best for you are three-fold.

A mortgage broker gives you a second opinion.
While your current mortgage lender claims to have your best interest at heart, getting a second opinion on your financial situation does not hurt. There may be new options and products available for you that your current lender is forgetting or unable to offer. A second opinion on your changed financials may be able to save you money or highlight some new options that may be better suited to your needs.

A mortgage broker does the work for you, at no cost.
Some people are still concerned that hiring a seasoned professional to look at your finances and find new mortgage rates will cost a lot of money. This is a myth! Mortgage brokers provide their services at no charge (yes, free!) and take a fee from the lending institution, not the client. So, let us look around for the best mortgage rates available to you on your behalf – all at no cost to you.

A mortgage broker does ONE credit check but can check MULTIPLE lenders without lowering your credit score.
One of the biggest advantages to having a mortgage broker shop around on your behalf is having them conduct one credit check and then using that information to shop around among several different lenders. If you wanted to shop around on your own, you would have to allow each institution to run a credit check and, as a result, lower your credit score. Working with a lender also means a lot less paperwork for you, too!

In short, a Dominion Lending Centres mortgage broker does the legwork on finding the best mortgage rate for you, at no cost and with only one credit check. Be sure to spring into action this Spring to and get a jump on your mortgage renewal process.

Max Omar

Dominion Lending Centres – Accredited Mortgage Professional

History of Mortgage Changes

The mortgage industry seems to be ever-changing. What was applicable one day seems to no longer apply to the next and at times, it can be confusing to navigate through what all of these changes mean–and how they impact you directly. As Mortgage Brokers, we firmly do believe that although the industry has gone through MANY changes over the years, each time our clients are able to overcome them by practicing the same sound advice–which we will reveal at the end! But first, a walk through of the mortgage changes over the past few years and how the industry has changed:

LOOKING BACK

Before 2008

During this time, lending and mortgages policies were much more lenient! There was 100% financing available, 40-year amortizations, cash back mortgages, 95% refinancing, 5% down payment required for rental properties, and qualifications for FIXED terms under 5 years and VARIABLE mortgages at discounted contract rate. There was also NO LIMIT for your GROSS DEBT SERVICING (GDS) if your credit was strong enough. Relaxed lending guidelines when debt servicing secured and unsecured lines of credits and heating costs for non-subject and subject properties.

July 2008

We saw the elimination of 100% financing, the decrease of amortizations from 40-35 years and the introduction of minimum required credit scores, which all took place during this time period. It was also the time in which the Total Debt Servicing (TDS) could only be maxed to 45%.

April 2010
This time period saw Variable Rate Mortgages having to be qualified at the 5-year Bank of Canada’s posted rate along with 1-4 year Fixed Term Mortgages qualified at the same. There was also the introduction of a minimum of 20% down vs. 5% on investment properties and an introduction of new guidelines on looking at rental income, property taxes and heat.

March 2011

The 35-year Amortization dropped to 30 years for conventional mortgages, refinancing dropped to 85% from 90% and the elimination of mortgage insurance on secured lines of credit.

July 2012

30-year amortizations dropped again to 25 years for High Ratio Mortgages (less than 20% down). Refinancing also dropped down this time to 80% from 85%. Tougher guidelines within stated income mortgage products making financing for the Business for Self more challenging and the disappearance of true equity lending. Perhaps the three biggest changes of this time were:

● Ban mortgage insurance on any million dollar homes
○ 20% min requirement for down payment
● Elimination of cash back mortgages
○ Federal guidelines Min; requirement of 5% down
● Introduction to FLEX DOWN mortgage products

February 2014

Increase in default insurance premiums.

Februrary 2016

Minimum down payment rules changed to:
● Up to $500,000 – 5%
● Up to $1 million – 5% for the first $500,000 and 10% up to $1 million
● $1 million and greater requires 20% down (no mortgage insurance available)

Exemption for BC Property Transfer Tax on NEW BUILDS regardless if one was a 1st time home buyer with a purchase price of $750,000 or less.

July 2016

Still fresh in our minds, the introduction of the foreign tax stating that an ADDITIONAL 15% Property Transfer Tax is applied for all non residents or corporations that are not incorporated in Canada purchasing property in British Columbia.

October 17, 2016: Stress testing

INSURED mortgages with less than 20% down Have to qualify at Bank of Canada 5 year posted rate.

November 30, 2016: Monoline Lenders

Portfolio Insured mortgages (monoline lenders) greater than 20% have new conditions with regulations requiring qualification at the Bank of Canada 5 year posted rate, maximum amortization of 25 years, max purchase price of $1 million and must be owner-occupied.

AND HERE WE ARE NOW…

January 2018: OSFI ANNOUNCES STRESS TESTING FOR ALL MORTGAGES + NO MORE BUNDLING AND MORE RESTRICTIONS

•If your mortgage is uninsured (greater than 20% down payment) you will now need to qualify at the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%

•Lenders will be required to enhance their LTV (loan to value) limits so that they will be responsive to risk. This means LTV’s will need to change as the housing market and economic environment change.

•Restrictions will be placed on lending arrangements that are designed to circumvent LTV limits. This means bundled mortgages will no longer be permitted.

*A bundled mortgage is when you have a primary mortgage and pair it with a second loan from an alternative lender. It is typically done when the borrower is unable to have the required down payment to meet a specific LTV.

BOTTOM LINE: WHERE DO WE GO FROM HERE?

As you can see, the industry has always been one that has changed, shifted and altered based on the economy and what is currently going on in Canada. However, with the new changes that have come into effect this year, we recognize that many are concerned about the financial implications the 2018 changes may have.

The one piece of advice that we promised you at the start of this blog, and one that has helped all our clients get through these changes is this: work with a Dominion Lending Centres mortgage broker!

We cannot emphasis the importance of this enough. We have up to date, industry knowledge, access to all of the top lenders and we are free to use! We guarantee to not only get you the sharpest rate, but also the right product for your mortgage.

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

Keeping Your Credit Score Healthy

If you haven’t seen your credit score, you’re not alone.

Many of our clients don’t know about their credit score or even know what it is when we first meet with them. During our initial consultation, we go over your complete credit report with you. As an added bonus, we’ll even teach you how to read it.

So, how can you make sure you have a great credit score? Here are a few tips to get you started.

1. You need to have credit. It may be surprising – but your credit score goes up as more credit is available to you. We recommend at least two facilities: a credit card and a line of credit (or 2 credit cards).
2. You also have to pay your bills when they are due. That goes for your internet, cell phone and even parking tickets.
3. It also helps to start as soon as possible. The longer you have a clean record of paying your credit card, loans or other credit facilities, the better your credit becomes.
4. Finally, make sure to carry a low balance. One of the least known ways to hurt your credit is to have high utilization.

Don’t ever hesitate to contact a Dominion Lending Centres mortgage professional about your mortgage related needs when you’re buying a property anywhere in Canada.

Eitan Pinsky

Dominion Lending Centres – Accredited Mortgage Professional
Eitan is part of DLC Origin Mortgages based in Vancouver, BC.

What Is a “Monoline” Lender?

What usually follows once someone hears the term “Monoline Lender” for the first time is a feeling of suspicion and lack of trust. It’s understandable, I mean why is this “bank” you’ve never heard of willing to loan you money when you’ve never banked with them before?

In an effort to help you see the benefits of working with a Monoline Lender, here is some basic information that will help you understand why you’ve never heard of them, why you want to, and the reason they are referred to as lenders, not banks.

Monoline Lenders only operate in the mortgage space. They do not offer chequing or savings accounts, nor do they offer investments through RRSPs, GICs, or Tax-Free Savings Accounts. They are called Monoline because they have one line of business- mortgages.

This also plays into the reasons you never see their name or locations anywhere. There is no need for them to market on bus stop benches or billboards as they are only accessible through mortgage brokers, making their need to market to you unnecessary. The branch locations are also unnecessary because you do not have day-to-day banking, savings accounts, investment accounts, or credit cards through them. All your banking stays the exact same, with the only difference of a pre-authorized payments coming from your account for the monthly mortgage payment. Any questions or concerns, they have a phone number and communicate documents through e-mail.

Would it help Monoline Lenders to advertise and create brand awareness with the public? Absolutely. Is it necessary for them to remain in business? No.

Monoline Lenders also have some of the lowest interest rates on the market, the most attractive pre-payment privileges, and the lowest pre-payment penalties, especially when compared to a bigger bank like CIBC or RBC. If you don’t think these points are important, ask someone whose had a mortgage with one of these bigger banks and sold their property before their term was up and paid upwards of $12,000 in penalty fees. An equivalent amount with a Monoline Lender would be anywhere from $2,000-$4,000 in fees.

Monoline Lenders are not to be feared, they should be welcomed, as they are some of the most accommodating and client service-oriented lenders around! If you have any questions, don’t hesitate to call your local Dominion Lending Centres mortgage professional.

Ryan Oake

Dominion Lending Centres – Accredited Mortgage Professional
Ryan is part of DLC Producers West Financial based in Langley, BC.

What are Accelerated Payments?

An accelerated payment is a mortgage payment that is increased slightly so that you can pay off your mortgage faster. There are two common types of accelerated payments: bi-weekly and weekly. Of the two, bi-weekly is the much more common choice because it matches with pay dates more often.

An accelerated payment works by increasing your weekly or bi-weekly payment by an amount that would have you pay one full month’s payment extra per year.

Accelerated payments are a great way to start paying off your mortgage, but they actually do not have much of an impact on the interest you will pay. Banks and mortgage professionals use this term to make borrowers think they are paying off their mortgage faster, but the amount of interest saved over the course of your term is minescule.

There’s nothing wrong with accelerated payments, but they are only part of the puzzle. Please contact a Dominion Lending Centres mortgage professional to learn more.

Illustration:
If your payment is $1,000 per month, you pay 12 months per year, which will equal $12,000 of payments that year.

Now, if you pay semi-monthly, or every half month, you pay $500 per payment, for a total of $12,000 per year at 24 payments.

Bi-weekly payments are 26 payments per year with $461.50 per payment.

However, accelerated bi-weekly payments use the semi-monthly payments of $500, 26 times. This means that you end up paying $13,000 over the course of the year, or one extra monthly payment.

The Bare Bones

If all you do is an accelerated payment, your mortgage payoff is stunted compared to what is available. Across Canada, due to the fact that mortgage sizes are now very high, paying off a mortgage should be more of a priority.

Eitan Pinsky

Dominion Lending Centres – Accredited Mortgage Professional
Eitan is part of DLC Origin Mortgages based in Vancouver, BC.

Canada’s Jobless Rate Returns To 40-Year Low

Statistics Canada announced this morning that Canada’s jobless rate returned to a four-decade low as job growth rebounded, confirming that the jobs market is at or near full-employment. Canada added 15,400 net new jobs last month as the unemployment rate edged downward to 5.8%, its lowest level in records back to 1976. This follows January’s 88,000 job loss. However, the gains reflected a rise in part-time employment, which was up 54,700. Full-time jobs were down by 39,300, a reversal in the January performance and the first time in five months that full-time employment has fallen. Full-time positions have been responsible for most of the boom in jobs in the past year and a half, jumping by nearly 500,000 net new ones over that period.

Wage growth decelerated to 3.1% in February, after hitting 3.3% a month earlier, its fastest pace since 2015. Salary gains were boosted last month by the Ontario hike in minimum wages.

Ontario recorded the most substantial monthly drop in employment in January (down 50,900) on the heels of the wage hike. The province led job growth in February but made up only a small part of January’s loss with only 15,700 net new jobs. Employment was also up in New Brunswick and Nova Scotia, while it decreased in Saskatchewan and was little changed in B.C. Of note, Alberta’s unemployment rate fell to 6.7%, a 1.5 percentage point decline over the past year, as the provincial participation rate fell slightly in February.

The bulk of the gains were in the public sector (+50,300), while the private sector added 8,400 net jobs. Holding back the overall pace of gains was a decline in self-employment, down 43,300 in February after four months of net increases.

The gain last month was driven by services-producing industries, particularly health care and education. Manufacturing recorded a loss of 16,500 workers during the month. The number of people working in natural resources rose 7,600 in February, bringing the year-over-year employment growth to 3.4%. Employment in this industry has been trending higher since the second half of 2016.

The finance, insurance, real estate, rental and leasing industry–heavily impacted by the slowdown in housing–experienced a drop in employment of 12,000 last month, posting no growth on a year-over-year basis. 

Today’s employment release is consistent with Canadian growth of roughly 2.0%. The February net gain of 15,400 is probably about what we can expect on average this year as the economy bumps up against full capacity. At 3.1% in February, wage growth posted a fourth consecutive month above its longer-term average of 2.6%. This will not set off inflation warnings at the central bank as the Bank of Canada reported this week that it still assesses wage growth to be below what is normal in an economy without labour market slack. This suggests the Bank will maintain its cautious stance.

U.S. Jobs Strong As Wage Gains Slow

U.S. nonfarm payrolls surged 313,000 in February compared to an expectation of a 200,000 net gain. Gains were mainly in the private sector and upward revisions to the prior two months added another 54,000 jobs. The jobless rate held at 4.1%–the fifth straight month at that level–as increased numbers of new workers entered the labour force. Rising labour force participation rates–reflecting the reentry of discouraged workers–might be one factor holding down wage gains.

Wage growth, which rose a moderate 0.2% month-over-month in February, dipped on a year-over-year basis to 2.6% from a level of 2.8% the prior month. Still, wages have risen at a 3.0% annualized pace over the past three months. The sharp pay gains spooked the markets last month but are apparently not yet taking hold.

Today’s jobs release signals the U.S. labour market remains strong and will keep driving economic growth, while the wage figures show some cooling from a pace that spurred financial turbulence last month on concern that the Federal Reserve could raise interest rates faster. The unemployment rate remains well below Fed estimates of levels sustainable in the long run.

The new Federal Reserve Chairman Jerome Powell will debut at his first Federal Open Market Committee Meeting March 20-21. The question market participants are mulling over is whether central bank officials will hold to projections of a total of three rate hikes this year, or boost the outlook to four.

President Donald Trump has said the tax-cut legislation he signed in December would spur economic growth and boost jobs and wages. At the same time, his tariffs on steel and aluminum imports may become a headwind depending on how extensively they’re implemented and how other nations retaliate. Canada can breathe a sigh of relief for now as Trump made a last-minute turnabout to exempt US NAFTA partners from the tariffs. The president struck an unusually optimistic tone on the fate of NAFTA but repeated his threat to quit the pact if the talks fall short.

“Today is a step forward,” Chrystia Freeland, Canada’s foreign minister, told Bloomberg News in Toronto Thursday. She said Canada would push “until the prospect of these duties is fully and permanently lifted,” and said it would be inconceivable to apply tariffs to a close military ally like Canada on national security grounds.

Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.