Mortgage Fraud In Canada: What Millennials Should Know

When striving to achieve a big goal, like buying a home, it’s not uncommon to submit to a temptation to cut corners, find loopholes, and even tell white lies. If we think such dubious tactics will help our chances, we will rationalize our behaviour as a victimless crime or even an act of admirable perseverance in an unforgiving financial system and hostile real estate market.

Equifax, the global data, analytics and technology company, released a survey on mortgage fraud and the results were startling, particularly among millennials. Nearly 23% of millennials “believe it’s acceptable to inflate your income when applying for a mortgage,” according to the survey. That’s a shocking admission of dishonesty and almost double the percentage of the general population when asked the same question (12%).

So why are young people so inclined to embellish their financial qualifications as a means to attaining a mortgage? Perhaps it has to do with Canada’s increasing impenetrable real estate markets in big cities like Toronto and Vancouver, where getting your foot in the door can take years if not decades. By that view, it’s hard not to be sympathetic with those looking for an edge.

But mortgage fraud – defined as a deliberate misrepresentation of information to obtain mortgage financing that would not have been granted if the truth had been known – is a dangerous game. It can lead to overextended credit situations, causing you stress and the potential to default on payments, which will impact your credit score.

As Julie Kuzmic, Director of Consumer Advocacy at Equifax Canada, says, “What some may see as a little white lie during the mortgage application process could have legal consequences or become a very hard lesson for people to learn if they cannot keep up with their mortgage payments.”

Is mortgage fraud a victimless crime?

With 23% of millennials, and 16% of all respondents, saying mortgage fraud is a victimless crime, the Equifax survey tells us that this technically illegal act is being viewed in a similar light to jaywalking or highjacking your neighbour’s Wi-Fi signal. Nobody is getting hurt right? Wrong.

The reality is the victim will usually be the one committing the fraud. Inflating your income or withholding important financial information might get you a bigger mortgage, but you’re going to be on the hook for repayments that might be beyond your means. This could cause daily stress on you and your family. Not to mention impacting your overall financial health for a long time.

Don’t be persuaded by shady lenders or brokers who want your business and don’t care about your long-term future. If they encourage you to be less than truthful in a mortgage application, walk away or report them to your province’s financial regulatory body. Conversely, if a broker or lender suspects you of fraud, you could be reported and have your credit tarnished, affecting future applications. You don’t want that Scarlett letter, so to speak.

How to avoid mortgage fraud – start with your credit score

The Equifax survey also revealed a high number of mortgage applicants are not checking their credit scores going into the application process. That’s a mistake to think that claiming an inflated income is enough to secure a mortgage; you usually need a decent credit rating too. The survey had 60% of respondents saying they did not check their credit scores before approaching a lender.

Doing due diligence on your credit score will give you insight into how successful your mortgage application will be. Ideally, a lender or broker wants to see good credit behaviour, which is represented by a number between 300-900. According to Equifax, a credit score rated above 660 is considered good by most lenders. You can check your Equifax credit score for FREE using Borrowell.

Credit Score Range Canada

Build your credit profile

As discussed, it usually takes more than the required income level to successfully obtain a mortgage – you also will usually need a history of good credit behaviour. That may not be realistic for everyone, but there are always ways to rehab your credit rating. In fact, Fresh Start Finance has written a guide to

Basically, you start the process by obtaining your credit report and checking it for errors. You never know what mistakes were made in the bureaucratic world of credit ratings. Some other quick wins include increasing the credit limit on a credit card or line of credit. That might seem counterintuitive, but it improves what’s called credit utilization, meaning the more credit you are not using, the better it looks. Try to keep balances at about 30% of your total credit limit.

Another tactic is to keep credit cards open even if you’re aren’t using them (putting credit cards in the freezer, for example, is good way to put them out of use). Credit history is a key factor that affects your credit score – 15% to be exact.

Those are the quick and easy ways to improve your credit score. Now here’s the long hard road – pay down debt and don’t ever, ever miss bill payments. Punctuality is vital in building a solid credit profile. In fact, it accounts for a whopping 35% of your credit score.

Pro tip: Set up automatic payments where possible, so you’ll never forget to pay a bill again.

How is your credit score calculated?

Consider a side hustle to improve your mortgage chances

Instead of lying on mortgage applications and living like a criminal in the shadows of society consider pumping up your income the legit way. More and more young people are turning to side hustles to augment their incomes.

Although it is the primary reason, the advantage of a side hustle isn’t just added revenue. It also breaks up the monotony of your main source of income. If it’s something you’re passionate about, even better, because it can elevate your spirit to know your energy is being invested in something that matters to you. Plus, it will make you feel less “trapped” in your workaday life.

Can’t afford a home right now? Give it time.

Even if you’re not immediately ready to qualify for a mortgage, a broker will work with you and help you prepare for homeownership when the time is right. Just remember to be honest with your mortgage broker. A home could be the biggest purchase of your life – you don’t want it crashing down on you like a leaky roof.

 


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Toronto condo investment to experience massive shift in a few years

Toronto condo investment to experience massive shift in a few years 

In less than five years, investment in Toronto’s condos will experience a significant upheaval as condo costs keep climbing and tenants veer ever closer to the brink.

At present, the asset class is among the market’s most dominant: Condos currently account for fully 20% of Toronto’s rental housing.

Moreover, as much as 30,000 new units are expected to enter the supply chain this year, compared to the 20,000 completed in 2019.

However, Urbanation president Shaun Hildebrand warned that this virtuous cycle of sustained demand impelling further market growth has an upper limit, as rent will eventually be unable to cover monthly carrying costs.

“There is a tipping point,” the executive told the Toronto Star. “We’re seeing a big shift in demand for micro-units, small studios that are really the only type of unit in today’s market that’s priced under $2,000 a month. You’re starting to see some migration from the downtown markets into the 905 where it’s cheaper; renters are gravitating to older buildings.”

By 2023-24, Hildebrand estimated that condo investors will need a steep $4,000 a month to carry units, assuming a 25% down payment and a 3.5% interest rate.

This is the point where Hildebrand expects the market to hit a snag, as it’s unlikely that tenants will be willing to put up with costs fully 60% higher than the current rent average of $2,500.

“I’m not sure that condo investors that have been active recently in buying pre-construction units fully appreciate how much supply is underway in the condo sector and what that will do for their assumptions for returns,” he said.

“For a little while it’s going to feel like we’re building enough rentals because there’s going to be a lot of investor-held units coming into the market, but it’s going to be temporary.”

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Mortgage qualification a barrier to homeownership — poll

A growing number of Canadians see mortgage qualification as the biggest barrier to homeownership, according to a recent study by Zillow and Ipsos.

Around 56% of Canadians see qualifying for a mortgage as a barrier to homeownership, a six-point increase from 2018. After mortgage qualification, the next top worry for buyers is whether they can afford the mortgage payment, with roughly 54% saying so.

Canadian borrowers have to qualify under the stricter mortgage requirements and stress test that took effect in January 2018. Under the new rules, borrowers should be able to prove that they can service a mortgage at a higher rate.

“The rule only applies to newly originated mortgages and is designed to prevent borrowers from taking on more debt than they can handle if interest rates go up,” the study said.

One in two Canadians said they are concerned that these new rules will prevent them from qualifying from a mortgage.

Younger borrowers bear the weight of the new rules the most, with 69% of those in the 18-34 age bracket feeling concerned about qualifying for a mortgage.

“These mortgage regulations could impact a substantial portion of potential buyers, as the survey results show a large share of Canadian homeowners get mortgages. This worry is also present for current renters who may be considering the purchase of their first home,” the study said.

A recent report by the Canadian Mortgage and Housing Corporation, however, indicated that most buyers felt there were benefits to the stress test. The CMHC survey found that 65% of buyers believe the mortgage qualification stress test will prevent more Canadians from taking on a mortgage they can’t afford in the future.

While the majority of homebuyers surveyed by CMHC were aware of the new rules, more than three-quarters said the changes had little or no impact on their decision to buy a home. This number is down slightly from 80% in 2018, but still represents a healthy majority of homebuyers.

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In the $1.6-trillion mortgage market Canadians don’t even understand the basics

Houses and townhouses are seen in an aerial view, in Langley, B.C., on Wednesday May 16, 2018. (Darryl Dyck/CP)

When it comes to mortgages, a government survey finds most Canadians don’t know their terms from their amortizations

 

It’s no secret that the financial literacy of Canadians is tenuous at best, but given the fact that households are carrying $1.6 trillion worth of residential mortgage debt, we should be particularly nervous about just how yawning the knowledge gaps are when it comes to the basics of a mortgage.

survey conducted for the Financial Consumer Agency of Canada and the Bank of Canada and made public this week found when it comes to simple mortgage terminology like “term” and “amortization” most Canadians are hopelessly lost.

According to the survey slightly more than half of consumers failed to correctly identity what “mortgage term” means. Only 49 per cent offered purely correct responses like “the years you have a mortgage/contract term,” “the length of time you are committed to a mortgage rate,” or “the length of time before renewal.”

Canadians have an even shakier grasp on what “amortization” means  — while just over one quarter (28 per cent) of the general population could offer a proper definition of the word, they also said things in their answers that made it clear they didn’t fully know what they were talking about.

Fewer than one per cent of Canadians could give a strictly correct definition for amortization as “the time to pay the mortgage in full.”

Just so we’re clear, the amortization period is the length of time it will take you to completely pay off a mortgage (generally 25 years) while the mortgage term is the length of time you commit to a specific mortgage rate and conditions with a lender (usually five years).

While the above responses from the survey reflect the mortgage knowledge of the general population, even those people specifically targeted in the survey who have a mortgage or plan to buy a home in the next five years had only a marginally-better understanding of mortgage basics. As the survey results note, “three-in-10 in the target audience … do not know what the phrase ‘amortization period’ means,” which suggests a large number of people plunged into the biggest financial decision of their lives with a dubious understanding of the core terminology in the documents they were signing.

“The responses indicate that there is a significant lack of knowledge about mortgage terms among both the general population and the target audience,” wrote the authors of the survey. The survey, which was published was conducted by Ipsos Public Affairs and involved interviews with 5,000 Canadians between May and June 2019.

The findings were meant to establish the “baseline knowledge” Canadians have about mortgages as part of a larger quest: to find out what Canadians know about long-term mortgages and why they don’t chose that option more.

In fact just as the survey was getting underway last May, Bank of Canada governor Stephen Poloz gave a speech in Winnipeg where he made an impassioned (well, for a central banker, at least) case for the financial industry and Canadians homebuyers to embrace longer-term mortgages. It was part of a broader call by him for innovation in the mortgage sector.

While fixed-rate mortgages with terms longer than five years are widely available, they’re little used — just two per cent of all mortgages issued in 2018 were fixed-rate loans with terms longer than five years, according to the Bank of Canada. Yet Poloz sees a lot of benefits to both consumers and the financial system if that number were to rise. For one thing, he said, a longer term means fewer renewals and hence less risk that when households do renew it will be at a higher rate. (Poloz acknowledged a longer-term mortgage will have a higher interest rate, but for some homebuyers the trade-off for lower risk will be worth it.)

As for the financial system, the fact that nearly half of all mortgages in Canada carry fixed-rate five-year terms means that when interest rates do start to rise again, which they will, a whole lot of borrowers who took on massive mortgages in recent years will be up for renewal each year. “Simple math tells you that of all those five-year mortgages, roughly 20 per cent will be renewed every year,” he said. “That is a lot of households. If all the mortgages were 10-year loans, only 10 per cent of these homeowners would renew every year.”

Based on the survey results Poloz has his work cut out for him — only one-in-10 homeowners or likely buyers can correctly define both a mortgage term and an amortization period and at the same time even know that mortgages with terms longer than five years exist in Canada.

 

Source: Macleans.ca – by Jan 16, 2020

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Landlords can’t ask for ‘last month’s rent’ plus security deposit, thanks to new rent laws

Your security deposit is not supposed to be used as last month’s rent.

It is now illegal in New York state for landlords to require you to pay last month’s rent in addition to a month’s security deposit when you sign a lease. New rent reforms clearly state that in nearly all cases, “no deposit or advance shall exceed the amount of one month’s rent.”

Nor can landlords require renters with bad credit histories or annual salaries less than 40 to 45 times the monthly rent to pay multiple months of rent up front. In the past, they’ve typically asked for anywhere from three to 12 months worth of rent.

The new law lowers financial barriers to renting an apartment in New York City, a good thing for most renters. But it complicates things for renters who don’t meet the landlords’ income requirements (including students and retirees), have a blemish on their credit record or no credit history at all, such as international renters.

 

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Elizabeth Stone, the managing agent at Stone Realty Management, says the protections may backfire. “We are going to require guarantors or just reject the tenants outright. So those that have lower incomes are going to miss out because landlords are not going to take the risk,” she says.

A lease guarantor is someone who lives in the tri-state area and earns an annual salary of around 80 times the monthly rent. Another option is an institutional guarantor like Insurent (a Brick Underground sponsor), which charges renters a fee for the service, usually 70 to 85 percent of one month’s rent for U.S. renters and 90 to 110 percent of one month’s rent for international renters without U.S. credit history for the 12 to 14 month lease.

What’s the difference between a security deposit and last month’s rent anyway?

Your security deposit covers the cost of repairing damages to your apartment, while your last month’s rent is pretty much what it sounds like. The two are not supposed to be interchangeable.

While the security deposit is capped at an amount equal to one month’s rent, it doesn’t change the fact any rent paid in advance and the deposit are different things and a landlord is entitled to deduct money from the deposit for any costs associated with damage to the apartment when a tenant moves out.

Your lease will make clear what the security deposit is for; it’s designed to make sure you leave a clean, undamaged apartment with a working set of keys so the landlord can easily rent the unit to someone else.

In most buildings with more than six units, the landlord is required by law to put the security deposit in escrow, giving the tenant more protections than if the money was in a private account.

The practice of not paying the last month’s rent

Some New Yorkers claim they never pay their last month’s rent, figuring the security deposit can stand in as the rent.

Adam Frisch, managing principal at Lee & Associates Residential NYC, a real estate company representing building owners in Manhattan, says a tenant might tell a landlord, “I’m not going to initiate the final rent payment and you can keep my security and there’s nothing you can do about it.” He says they are right, “there isn’t much we can do about it,” but if there’s damage to the apartment, a landlord would be entitled to sue to recover the costs.

“Tenants have gotten away with this and will continue to do so, but they are not supposed to,” he says. Certainly, in situations where the apartment needs nothing more than a lick of paint, there’s no loss to the landlord.

Getting landlords and tenants in sync

In the past, the security deposit was legally required to be returned in a ‘reasonable’ time frame, a vague term that gave renters no reassurances. Landlords must now pay back the security deposit within 14 days of the end of the tenancy.

This has some landlords furious, saying the timing is too tight to assess and price out any damage or close the escrow account where the security is held. They are also required to do walk-throughs at the beginning and end of a tenancy so any damage can be properly itemized.

If walk-throughs allow renters to work towards correcting any issues and they know they will get their deposit back promptly, it’s possible landlords may find it cuts down on the practice of using the deposit as the last month’s rent.

Stone disagrees, pointing out the kind of tenant who makes a landlord take the security deposit as the final rent payment is the same kind of tenant who doesn’t take care of their rental during their tenancy.

“Limiting how much money [a landlord] can take up front and limiting the security deposit is designed to stop tenants being excluded from some of these apartments but I don’t think in practicality, it will work for them,” she says.

Source: BrickUnderground -DECEMBER 23, 2019  BY EMILY MYERS

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These homes just sold for under $500,000 in Mississauga

If you’re hoping to purchase a home—especially as a first-time homebuyer—in 2020, you will face a challenging market defined by low inventory and high prices (which appear to be climbing higher).

But you’ll also enjoy low interest rates and, if you qualify, help from the federal government’s First-Time Home Buyer Incentive.

Penelope Graham, the managing editor of real estate brokerage and website Zoocasa, says that the current dearth in housing supply (just 335 homes hit the market in December 2019) has driven the average home price up to $799,593 in Mississauga.

While the supply and demand imbalance is tough, there are homes available for under $500,000 in the city.

Here’s a look at some affordable homes that hit the market in late 2019.

All info and images courtesy of Zoocasa


906 – 3145 Queen Frederica Drive

This one-bedroom, one-bathroom, 500+ square foot unit just sold for $285,000 after being listed for $275,000. The suite, which is good for investors or first-time buyers who don’t mind giving the place a little TLC, offers a large balcony and proximity to shopping and transit.


113 – 5100 Winston Churchill Boulevard

This approximately 499 square foot bachelor suite offers one bathroom and no parking space, but it’s a pretty rare find in the city. The unit just sold for $325,000 after being listed for $354,900, and it offers ensuite laundry, a back door exit to the patio, low condo fees and a pretty prime location.


13 – 605 Shoreline Drive

This 599 square foot condo boasts one bedroom, one bathroom and one parking spot. It sold for $364,000 after being listed for $361,000, and it features an open-concept living, dining and kitchen combo and additional cabinets in the kitchen.


407 – 2900 Battleford Road

This two-bedroom, one-bathroom unit boasts up to 799 square feet of space and two parking spaces (which is rare). The unit sold for $373,000 after being listed for $375,000, and the building features a gym, party room, tennis court, sauna, outdoor pool, children’s playground and visitor parking.


27 – 4620 Guildwood Way

This one-bedroom, one-bathroom unit spans about 599 square feet and offers one parking spot. It sold for $380,000 after being listed for $395,000. It offers laminate flooring, ensuite laundry, a modern kitchen and double sinks.

 

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Ontario’s rental vacancy rate is starting 2020 at a near record low

Mississauga Toronto condo prices<img class=”aligncenter size-full wp-image-196480″ src=”https://d3exkutavo4sli.cloudfront.net/wp-content/uploads/2019/10/Mississauga-Toronto-condo-prices.jpg” alt=”Mississauga Toronto condo prices” width=”1024″ height=”683″ />

Photo: James Bombales

New year, no vacancy. Renters in cities across Ontario will spend another year struggling to find rental housing as prices continue to rise in the face of tight market conditions.

In 2019, the vacancy rate was 1.6 percent and it will likely drop further through 2020 to a near record low of 1.5 percent, according to Central 1 Credit Union economist Edgard Navarrete. For context, the vacancy rate for Ontario’s rental market averaged 2.6 percent between 1991 and 2018.

In his 2019-2022 housing forecast published at the end of 2019, Navarrete noted that the province has seen a substantial uptick in completed new rental units over the last three years. Through the same 1991 to 2018 period, the average number of new rental units added to the market was 1,500. From 2017 to 2019, the average increased to 7,000 units.

The trouble is that increase still doesn’t satisfy the demand for rentals in some of the province’s most competitive markets, especially Toronto, which is said to have the worst rental supply deficit in Canada.

“Government investments in rental housing will continue to add to the rental universe but expect [the province’s] rental vacancy rate to remain stubbornly lower than the long-term average due to continued strong demand from immigrants settling in Ontario and existing renters opting to remain in rental longer until they have a sufficient down payment to qualify for a mortgage loan,” wrote Navarrete in the Central 1 Housing Forecast.

Unfortunately, the main takeaway here for Ontario renters is monthly rents will continue to climb above inflation as long as this sharp disparity exists between rental supply and persistent demand. Navarrete singles out Toronto, Ottawa-Gatineau, London, Kitchener-Cambridge-Waterloo and Hamilton as markets where rental prices will log especially steep increases and bidding wars will keep intensifying. These cities will feel the strain on their rental markets particularly acutely because they are set to absorb the most new residents to the province.

There is hope for a rental unit supply uptick in the next few years, but for those looking for a new rental this year, it’s unlikely to offer much relief. The provincial government under Premier Doug Ford rolled back the rent control measures introduced by the Wynne Liberal government just a couple years earlier. With more flexibility to price rental units in response to market demand, investors are more likely to see condos as a solid long-term moneymaker and purchase units to add to the rental market.

These investor-owned condos are known as the “secondary rental market” since they are not built for the sole purpose of being added to the rental pool. Purpose-built rental units are known as the primary rental market.

The caveat is that the positive market changes this policy shift from the Ford government intended to inspire won’t be felt for at least a few years.

“If we see a large number of investors entering the market today, with the average completion time of high-density housing such as condo apartments anywhere from two to three years from the time shovels hit the ground, it wouldn’t be until after 2022 when the increased rental market supply will alleviate some of the pressures from the primary rental market,” wrote Navarrete.

Source: Livabl.com –

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