Category Archives: #mortgagesmadesimple

What are the Best Mississauga Neighbourhoods to Invest in?

 

Source: Insauga.com – by Kim Kubath on October 29, 2017

With property values steadily escalating in Mississauga, it makes sense that investors (from all over) are interested in buying up valuable pieces of real estate. While the entire city is generally a good investment, each neighbourhood is different and some will suit different investor needs.

So, if you want to purchase an investment unit, which neighbourhoods are best and why?

Basically, Mississauga is a fantastic city to purchase an investment unit in. Amenities are growing, transit is abundant, and you can get more for your money compared to more expensive cities like Toronto.

Neighbourhoods close to transit (highways, GO Bus and Train,and MiWay) are great places to start and Meadowvale and Clarkson are examples of this. Investment units vary from mature detached houses to semis and towns. There are lots of amenities (such as shopping) in these areas and they are also family friendly, offering great schools and parks.

Churchill Meadows and Hurontario and East Credit (south of Derry in the Heartland area) also offer lots of amenities, parks and schools, with newer detached, semi, and town homes. These homes make good investment units as they tend to have more space for basement apartments (which are common in these neighbourhoods).

City Centre is another good area to invest in, especially if you are looking to purchase a condo. Whether it is one of the brand new buildings or an established one, City Centre offers a first time investor an opportunity to get into the market on a more modest budget (one bedroom or two bedroom units are significantly more affordable than a house). City Centre also attracts a greater variety of renters, including families, students and single professionals. Amenities and transit are also at the doorstep, making it an attractive location for a larger variety of renters.

Now, if you want to purchase a home or unit to live in, other considerations are important.

Mississauga is currently seeing record prices in all neighbourhoods. I often tell my clients that any neighbourhood in this city is worth purchasing in, but I think it is important to determine what must-haves suit you most.

If you are looking for great schools and parks, then Erin Mills, East Credit/Hurontario and Churchill Meadows are popular and family oriented. Streetsville and Lorne Park have also traditionally been great neighbourhoods to live in given their charm and consistently increasing market values.

If you want to invest in more expensive neighbourhoods, it’s good to look at Lorne Park, Mineola, Erindale (Mississauga Road), Port Credit and Streetsville. If you want to spend less, more affordable neighbourhoods include Malton, Cooksville, Sheridan, Meadowvale and Clarkson.

If you want to invest in a more affordable neighbourhood, you could be making a wise decision.

Malton, for example, offers close proximity to Toronto. As an investor looking to get into the rental market, these areas offer opportunities to purchase homes that are still more affordable than other neighbourhoods in the city. Some investors want to buy homes that need renovations and then sell them for profit, while other investors want to rent the property for several years.

Where do you invest if you want to rent your place out indefinitely?

Areas close to transit and amenities are key for having good tenant turnover. City Centre, East Credit, Cooksville, Meadowvale and Lisgar all provide these features. City Centre is walking distance to all major conveniences and at the moment, due to Sheridan College, has many interested students looking for rental units.

Investors may also want to stay tuned to developments with the incoming LRT. At the moment, there are many residents relying on transit in Cooksville and the LRT will provide another option for these commuters. It will be a benefit to property owners and potential landlords alike.

If you want to invest in Mississauga, there really are no bad neighbourhoods—you just have to choose the one that best suits your needs.

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Why a 20% home down payment may not be worth it

Source: The Globe and Mail – Rob Carrick

Rob Carrick

It’s tough to feel financially prudent when buying a house these days.

That’s why an increasing number of first-time buyers are saving a down payment of 20 per cent or more. In doing so, they avoid having to buy mortgage default insurance which, in the case of a house price of $487,095 (the national average) bought with a 10 per cent down payment, would be 3.1 per cent or $13,590. This premium is generally added to the mortgage, which means more interest to pay.

It certainly sounds financially prudent to make a 20-per-cent down payment where possible, but this isn’t always the case. In fact, you may save money both now and in the future by making a slightly smaller down payment and taking on the cost of mortgage default insurance.

Listen up if you’re concerned about the new mortgage lending rules that were announced last week and will take effect on Jan. 1. When making a down payment of 20 per cent or more, the new rules require that you be able to qualify for a mortgage at the greater of the five-year benchmark rate published by the Bank of Canada, or the original contractual rate plus two percentage points. An easier path to a mortgage may be to make a smaller down payment.

To even propose this seems bizarre. “The story has been that you’re just throwing money away with mortgage insurance,” said Mike Bricknell, a mortgage agent with CanWise Financial. What this thinking ignores is the way today’s mortgage market discriminates against people who make down payments of 20 per cent or more. They may pay a fair bit more for a mortgage than someone with a high-ratio mortgage (down payment of less than 20 per cent) both now and on renewal.

A lender dealing with a client who has a sub-20 per cent down payment can take comfort from the fact that the loan is covered by government-backed insurance that is paid for by the borrower. A conventional mortgage (20 per cent or more) can be insured as well, but by the lender. All in all, a high-ratio mortgage is preferable from the lender’s point of view and often results in a lower mortgage rate.

Mr. Bricknell has lately found that rates on five-year fixed rate mortgages are about 0.45 of a percentage point less for high ratio as opposed to conventional mortgages. Maybe your lender can do better than that. If not, consider this example of how a down payment less than 20 per cent can pay off.

We start with a $450,000 house and a buyer with a 20-per-cent down payment already saved. With a conventional mortgage amortized over 25 years, Mr. Bricknell figures this person could get a five-year fixed rate mortgage at 3.29 per cent. That means a monthly payment of $1,758.

Now, let’s see what happens when this borrower makes a 19-per-cent down payment. A smaller down payment means borrowing a bit more, and thus more interest over the life of the mortgage. Also, mortgage insurance will be required at a cost of $10,206. All of this nets out to a monthly payment of $1,743, with the mortgage insurance premium included. How is this possible? Mr. Bricknell said it’s because the high-ratio borrower gets a mortgage rate of 2.84 per cent.

There’s a stress test for high-ratio mortgages as well, but it’s marginally less onerous than it is for conventional mortgages because you only have to be able to handle the Bank of Canada benchmark rate, currently 4.89 per cent. Thus the high-ratio mortgage in Mr. Bricknell’s example would have a qualifying rate of 4.89 per cent and the conventional mortgage would be at 5.29 per cent (the client’s actual rate plus two percentage points).

The two mortgages outlined by Mr. Bricknell are pretty much a wash right now when compared on cost. Looking ahead, the high-ratio mortgage offers the potential for lower interest rates when it’s time to renew your mortgage. This assumes that lenders will continue to look more favourably at high-ratio mortgages.

Mortgage industry data show that even as house prices increased from the early 2000s through the past few years, the percentage of people making down payments of less than 20 per cent has declined to 39 per cent from 54 per cent. If the rationale for this is to save money and be financially prudent, a rethink is required. Depending on the rates offered by your lender, a slightly smaller down payment could save you money in the long run.

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What the new mortgage rules mean for homebuyers – There are two scenarios new buyers can anticipate

mortgage math

 

Source: MoneySense.ca – by  

 

 

Today, the Office of the Superintendent of Financial Institutions (OSFI) introduced new rules on mortgage lending to take effect next year.

OSFI is setting a new minimum qualifying rate, or “stress test,” for uninsured mortgages (mortgage consumers with down payments 20% or greater than their home price).

The rules now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year benchmark rate published by the Bank of Canada (presently 4.89%) or 200 basis points above the mortgage holder’s contractual mortgage rate. “The main effect will be felt by first-time buyers,” says James Laird, co-founder of Ratehub.ca. “No matter how much money they put down as a down payment, they will have to pass the stress test.” The effect of the changes will be huge, resulting in a 20% decrease in affordability, meaning a first-time homebuyer will be able to buy 20% less house, explains Laird.

MoneySense asked Ratehub.ca to run the numbers on two likely scenarios and find out what it would mean for a family’s bottom line. Here’s what they found:

SCENARIO 1: Bank of Canada five-year benchmark qualifying rate

In this case, the family’s mortgage rate, plus 200 basis points, is less than the Bank of Canada five-year benchmark of 4.89%.

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 2.83% amortized over 25 years can currently afford a home worth $726,939.

Under new rules, they need to qualify at 4.89%
They can now afford $570,970
A difference of $155,969 (less 21.45%)

SCENARIO 2: 200 basis points above contractual rate

In this case, the family’s mortgage rate, plus 200 basis points, is greater than the Bank of Canada five-year benchmark of 4.89%.

According to Ratehub.ca’s mortgage affordability calculator, a family with an annual income of $100,000 with a 20% down payment at a five-year fixed mortgage rate of 3.09% amortized over 25 years can currently afford a home worth $706,692.

Under new rules, they need to qualify at 5.09%
They can now afford $559,896
A difference of $146,796 (less 20.77%)

If a first-time homebuyer doesn’t pass the new stress test, they have three options, says Laird. “They can either put down more money on their down payment to pass the stress test, they can decide not to purchase the home, or they can add a co-signer onto the loan that has income as well,” says Laird. The stress test will be done at the time of refinancing as well, with one exception. “If on renewal you stay with your existing lender, then you don’t have to pass the stress test again,” says Laird. “However, if you change lenders at mortgage renewal time, you may have to pass the stress test but it’s not crystal clear now if this will be the case for those switching mortgage lenders.”

So if you’re a first-time homebuyer, it may mean renting a little longer and waiting for your income to go up before you’re able to buy your first home. Alternatively, some first-time buyers will buy less—maybe a condo instead of a pricier detached home. Or, the new buyers may opt to get a co-signer to qualify under the new rules.

But whatever you do, if you’re a first-time buyer, make sure you understand what you qualify for using the new regulatory rules, and get a pre-approved mortgage before you start house-hunting. “This shouldn’t be something that shocks you partway through the home-buying process,” says Laird.

And finally, do your own research and run the numbers on your own family’s income numbers. You can use Ratehub.ca’s free online mortgage affordability calculator to calculate the impact of the mortgage stress test on your home affordability.

mortgage math

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How rising interest rates are squeezing homeowners

Mortgage holders on tenterhooks as they prepare for Bank of Canada’s next rate announcement Oct. 25

Gerry Corcoran is bracing for Oct. 25. That’s when the Bank of Canada will make its next interest rate announcement, on the heels of two consecutive rate hikes. Corcoran said he can’t afford a third.

“A lot of us with variable rate mortgages are on pins and needles because we’re like, ‘Are we going to get hit again?'”

‘It’s kind of smacked my finances around a little bit.’– Gerry Corcoran, new homeowner

Corcoran, 38, signed the mortgage for his two-bedroom condo in Stittsville back in June.

Two weeks later, on July 12, the Bank of Canada announced a rate increase of .25 per cent, the first increase in seven years. It was followed by a second .25 per cent increase in September.

As someone with a variable rate mortgage, Corcoran says those small rate hikes have had a sizeable impact. He estimates they’ll cost him about $65 per month.

While it’s a cost he says he can absorb, as a new homeowner Corcoran only has a few hundred dollars a month in disposable income. It’s also meant he’s had to put on hold his plan to enrol in his employer’s matching RRSP program until next year.

“It’s kind of smacked my finances around a little bit,” he said. “It hurts.”


 


Gerry

‘A lot of us with variable rate mortgages are on pins and needles because we’re like, ‘Are we going to get hit again?” (Ashley Burke/CBC News)

Homeowners in ‘panic mode’

After years of record-low interest rates, people in the mortgage business say they’ve been waiting for this other shoe to drop.

Erin MacDonell, a mortgage agent with Mortgage Brokers Ottawa, says she saw a spike in calls after the rate hikes. Many callers were eager to buy — or refinance their mortgages — before rates went up again.

“People are in a little bit of a panic mode,” MacDonell said.

But even if interest rates continue to climb, she says a new federal “stress test” will help mortgage holders weather the changes.

Erin MacDonell, mortgage agent, ottawa mortgage brokers

Mortgage agent Erin MacDonell says calls from both potential buyers and homeowners looking to refinance spiked when the Bank of Canada announced a rate increase in July. (Ashley Burke/CBC Ottawa)

Under the safeguard introduced last October, a borrower had to be approved against a rate of 4.64 per cent for a five-year loan — even though many lenders are offering much lower rates. That rate is now 4.84 per cent.

The test applies to all insured mortgages where buyers have down payments that are less than 20 per cent of the purchase price.

“No one should be struggling too, too much,” MacDonell said.

Instead, she predicts future rate hikes will simply mean “people won’t be qualifying for as big of a house as they maybe wanted in the past.”

Gerry Corcoran says despite being forced to tighten his belt, buying was still the right choice for him.

“At the end of the day, even with mortgage and condos fees, I am still paying less to own this place than [I’d pay] to someone else to rent it.”

Source: Karla Hilton · CBC

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CMHC explores cutting red tape for self employed borrowers

The national housing agency is exploring ways to make it easier for entrepreneurs and new immigrants to buy a home by cutting some of the red tape required to prove they can afford to pay the mortgage.

“Right now, under our mortgage insurance policies, you have to be able to document income to get mortgage insurance, to a level of specificity that discriminates against new Canadians, because they can’t do that,” Evan Siddall, the CEO of the Canada Mortgage and Housing Corp., said in a wide-ranging interview with The Canadian Press.

“It discriminates against entrepreneurs, as well, because they can’t prove their income as well, so we’re looking at our own policies to try and make sure that there is more equity in our mortgage insurance programs,” he said.

Anyone who wants to buy a home in Canada without a down payment of at least 20 per cent of the purchase price is usually required to get mortgage loan insurance from the CMHC, which requires a smaller down payment of five per cent on a home worth up to $500,000.

A 10-per-cent down payment is required for the portion of the price over $500,000, with $1 million being the maximum property value allowed.

The mortgage insurance comes with a premium, which the lender will then pass on to the person buying the home.

Borrowers need to satisfy lenders they will be able to make their mortgage payments, which usually means providing proof of employment and a few pay stubs. But that can be tricky for people who just started their own business.

It can also be a barrier to those whose employment history has gaps for other reasons, such as having recently immigrated to Canada.

People who are self-employed, for example, usually need to provide notices of assessment for the previous two years. Their income is determined by averaging those two years, although the most recent year can be used if it has increased annually for at least four years.

They also need to have been doing the same type of work for at least two years.

Dan Kelly, president of the Canadian Federation of Independent Business, said more flexibility would be welcome, especially for startups.

“If one starts a business or is self-employed, the lines between their personal and business finances are often quite blurry,” said Kelly.

“Often, their personal assets are required to get financing for the business. But then they also have a challenge getting financing on the personal side, because they don’t have the nice, clean letter of offer from an employer that is often quite convincing in these situations,” he said.

Any relaxation of the rules would naturally increase the risk. So Siddall said the agency is looking at how to manage that, including different ways to document income, and higher premiums.

“Can we charge for that risk? Better to charge that risk than not to make it available,” he said.

Jack Fiorillo, a broker with TMG The Mortgage Group in Woodbridge, Ont., said he expects the CMHC to be fairly conservative on this front.

“It will be a very small sandbox that CMHC will play in, probably at the beginning, and then maybe if once their risk appetite increases, maybe they can expand that box,” said Fiorillo.

He said he expects the potential change to make it easier for a relatively small number of self-employed people to get a mortgage, and they will likely have to pay higher interest rates.

The CMHC said it has been compiling data on how many would-be homeowners have their mortgage applications rejected for these reasons, but cannot disclose those numbers right now because it is based on conversations with commercial lenders.

“We are still doing research and development to move this forward,” CMHC spokesman Jonathan Rotondo said in an email.

Siddall said the Crown corporation has raised the idea with its board and expects to announce something within the next six months.

Source: The Canadian Press

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Proposed mortgage rules aim to reduce financial risk in Canada’s hot housing markets

Vancouver has one of the hottest housing markets in Canada. New mortgage rules proposed by OSFI aim to mitigate the financial risks.

New rules proposed by the federal government to curb financial risks associated with the country’s hot housing markets could make it more difficult to secure a mortgage.

The Office of the Superintendent of Financial Institutions’ new guidelines proposed Thursday include stress tests for uninsured mortgages — loans secured with a deposit of at least 20 per cent on the value of the home.

Those homebuyers will now have to show that they can withstand a two per cent increase on their contractual mortgage rate. This would apply to variable and fixed-rate mortgages, regardless of term.

Using a million-dollar home as an example, buyers looking to secure a mortgage with a 20 per cent down payment at a three per cent interest rate would have to prove they could pay up to $4,652 per month instead of the $3,786 on their contract — a difference of $866 per month.

The changes come as the Bank of Canada looks set to increase interest rates as soon as next week for the first time in seven years.

CANADA-HOUSING/

The B.C. and Ontario governments have been using different tactics to try to cool housing prices in major cities. (Mike Cassese/Reuters)

“Persistently low interest rates, record levels of household indebtedness, and rapid increases in house prices in certain areas of Canada (such as Greater Vancouver and Toronto), could generate significant loan losses if economic conditions deteriorate,” OSFI wrote in a public letter.

But those working in and studying the real estate market say those changes aren’t likely to make a difference, especially given that those uninsured mortgages tend to be less risky because owners have already proved they have access to capital for a down payment.

What experts say will have a greater effect on housing markets is the office’s proposal to ban co-lending arrangements, or bundled mortgages, that sidestep rules designed to clamp down on risky lending.

The regulator said it is considering “expressly prohibiting co-lending arrangements that are designed, or appear to be designed, to circumvent regulatory requirements.”

Fear of a housing bust

Reuters reported in January that regulated mortgage providers were teaming up with unregulated rivals to circumvent rules limiting how much mortgage providers can lend against a property.

The arrangements have proliferated as Canadian regulators tightened lending standards to shield borrowers in case a decade-long housing boom goes bust.

“Bundled” or co-lending agreements with an unregulated entity can enable lenders to offer combined mortgages worth up to 90 per cent of a property’s value. Under federal rules, regulated lenders in Canada are not allowed to lend more than 65 per cent of the value of a home to borrowers with bad or nonexistent credit records.

They also cannot lend more than 80 per cent of a property’s value — even to borrowers with solid credit — without obtaining government-backed insurance.

city of vancouver empty homes

B.C. recently implemented a tax on foreign homebuyers as part of an attempt to reduce real estate demand and prices. (Rafferty Baker/CBC)

Under rules rolled out last October, that insurance requires the banks to run income stress tests on borrowers.

“When you’re looking at excited housing markets, you’re really concerned about where the capital is coming from,” said Tsur Somerville, a senior fellow with UBC’s Centre for Urban Economics and Real Estate.

“In terms of trying to cut down on the flow of capital in the housing, in particular in Toronto and Vancouver, cutting down on the bundling is probably the most important piece.”

Somerville guessed the intention behind the new regulations is likely a mix of wanting to cool those hot housing markets and mitigate risk in the financial sector.

Mortgage brokers concerned

Grant Thomas, founder and partner with The Mortgage Group, said he was concerned about the proposed changes — especially in big-city markets where homes often sell for millions of dollars.

Thomas said bundled mortgages are probably less than a third of all mortgages, but are often used when homeowners are financing the construction of a new home or are in between selling and buying a home.

Mortgage delinquency rates in Canada remain low even in cities like Toronto and Vancouver, he points out.

“The government has been intrusive in our industry in the last three years, and they continue to be so at a rate that is probably unnecessary,” he said.

“I’m not overjoyed whenever the government involves itself in business.”

Affordable housing in Nova Scotia.

Canadian regulators have tightened lending standards to shield borrowers in case a decade-long housing boom goes bust. (Robson Fletcher/CBC)

Thomas said his company and Mortgage Professionals Canada are planning to spend the next few days examining the proposed changes.

The Office of the Superintendent of Financial Institutions is accepting comments until Aug. 17. It said it will finalize the guidelines and set an effective date for implementation later in 2017.

The office said the proposed changes would be guidelines that federally regulated financial institutions would be expected to follow.

 

Source: Maryse Zeidler, CBC News

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Can’t Get a Bank Mortgage? How Do Private Mortgages Work?

Not everyone can qualify for a mortgage these days. Government regulations targeting down payments, investment properties and high-ratio buyers mean that more Canadians won’t qualify for a home loan.

It’s often said that housing is the bedrock of the Canadian economy. But for years, federal regulations have clamped down on the ability to qualify for a mortgage. The self-employed, individuals living in rural areas and those with past credit troubles have long struggled with home financing. Now that struggle is extending to other segments of the population.

Against this backdrop, more and more Canadians are turning to private mortgage lenders for their home financing needs. Although many borrowers think of private mortgages as a last-resort option, they are a viable option for many people.

Private Mortgage Lenders Operate Differently from Banks

A private mortgage is simply a home loan offered by an individual or company other than a bank or traditional finance provider.

One of the biggest benefits of working with a private lender is they operate differently from traditional banks on many levels. Since they get their money through individual investors or groups of investors, they have the freedom to set their own lending criteria. This means they are more flexible in the application process and don’t have to deal with the stringent guidelines set forth by the major institutions. This means that if your situation falls outside conventional lending guidelines, a private mortgage could be your best bet.

Private mortgages are often suitable if you:

  • Are self-employed
  • Want to purchase raw land or unique property
  • Have less than ideal credit
  • Want to invest in real estate
  • Need access to equity in your home, but don’t want to refinance your first bank mortgage due to excessive penalties
  • Need to consolidate high interest rate debt
  • Are looking to renovate existing property
  • Looking for a short-term loan

How Private Mortgages Work

If you’re exploring a private mortgage, the first step is to seek out a broker who provides alternative lending services. The broker will assess your situation and determine if you are eligible for a loan. In particular, they will assess your ability to make the loan payments on time.

From there, the broker will then search for the best mortgage solution that meets your specific needs. They will then structure the deal and put in place an exit strategy so that you know how long the private mortgage will last.

It’s important to note that private lenders usually lend on location. That’s because private mortgages are uninsured, which means the lender falls back on the property should a default occur. That’s why location of the property is extremely vital in determining whether you qualify for a private mortgage and the rate that you’re offered.

Broker fees and legal fees generally apply when securing a private mortgage.

Private mortgages are growing in popularity as more borrowers fall outside the traditional lending guidelines set forth by the major banks. The good news is there are plenty of options for those looking for an alternative lending solution to finance their next property or major purchase.

Source: Canada Mortgages Inc. – 1 September, 2017 / by Sam Bourgi

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