Tag Archives: home buyers

Keeping score

Keeping scoreBrokers must be willing to take on the role of educator when preparing the next generation of homebuyers to apply for a mortgage. A recent survey by Refresh Financial found that only 41% of Canadians know their credit score, and 20% are too scared to even find out their score.

Millennials (those born between the early ’80s and mid-’90s) and generation z (those born from the early ’90s to mid-2000s) are particularly anxious about their credit history and uninformed about how to build good credit. Thirty-nine per cent of millennial and gen z respondents said they were more stressed about their credit score than they were a year ago, and 25% admitted they’re not sure what makes up their credit score. In addition, a third of 18- to 34-year-olds said they believe their credit score is holding them back from making important life choices such as purchasing a home.

Click all images to enlarge.

Source: MortgageBrokerNews.ca –  08 Aug 2019

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Canada’s First-Time Home Buyer Incentive: Everything You Need to Know

The FTHBI is here. Learn how it can save you money on your first home purchase.
By Kara Kuryllowicz September 5, 2019

For the first time in years, Canada’s first-time buyers have a reason to feel optimistic. September 2, 2019, marked the launch of the Canadian Mortgage and Housing Corporation’s all-new First-Time Home Buyers Incentive (FTHBI), a financial incentive designed to help middle-class Canadians buy their first property.

 

The Perfect Time for the FTHBI

The timing for the FTHBI couldn’t be better. Beyond the First-Time Home Buyer Incentive itself, there are three key real estate factors that actually favour all buyers as we head into 2019, not just first-timers. Fixed mortgage rates remain at an all-time low. Most markets across the country are balanced or even a little soft. And maybe best of all (and as discussed in this recent Fall Trends article) buyers typically don’t buy homes in the lead-up to a federal election, giving first-time buyers some added leverage as markets slow before October 21.
“The First Time Home Buyer Incentive will reduce the monthly mortgage for your first home by up to $286,” says Jean-Yves Duclos, Minister of Families, Children and Social Development and Minister Responsible for Canada Mortgage and Housing Corporation. “This will help up to 100,000 families across Canada to buy their first home.”

 

How Does the FTHBI Work?

In effect, the FTHBI reduces their monthly mortgage payment without increasing the amount they need to save for the down payment. First-time buyers can finance a portion of their purchase through a form of shared equity mortgage with the Government of Canada. Home buyers will still have to pass the B-20 stress test and have mortgage pre-approval and mortgage approval.

“No doubt, some first-time buyers will benefit, and we’ll have to wait and see just how many families it affects,” says Paul Taylor, President and CEO, Mortgage Professionals Canada, Toronto.

 

Who Qualifies for the FTHBI 

  1. A combined household income of less than $120,000
  2. The insured mortgage and incentive cannot be more than four times the participants’ qualified annual household income
  3. Incentive is 5% on a resale or existing home
  4. Incentive can be either 5% or 10% on a newly constructed home
  5. Interest-free incentive
  6. No payments are due on the incentive until the home is sold or at 25 years
  7. The incentive can be repaid in full at any time without penalties (repayment must be in a lump sum of the current % valuation of the home.)
  8. The incentive must be repaid after 25 years, or when the property is sold, whichever comes first
  9. At 25 years, or resale, the homeowner repays 5 or 10% of the home’s value at that time rather than the amount received from CMHC (if the home lost value, the owner and CMHC share the loss and conversely, both parties benefit if the home increased in value)

 

For years now, unaffordable, astronomical properties have been getting all of the attention. In reality, those homes co-exist with some reasonably-priced, affordable homes in the very same cities, including Toronto, Montreal and Vancouver. Of course, those homes may be smaller apartments, older homes and/or in less desirable neighbourhoods, but they’re out there and may be perfectly suited to first-time buyers and their families.

 

The Financial Impact of the FTHBI

“CMBA is in favor of the FTHBI because by sharing equity with the government, first-time home buyers in specific segments are able to reduce the cash required for their weekly or monthly payments,” says Vancouver-based Rob Regan-Pollock, senior mortgage broker, Invis Inc., and co-chair of the Canadian Mortgage Brokers Association. “It’s another tool in the quiver for mortgage brokers and agents that are helping first-time home buyers earning less than $120,000 annually get into markets where they can purchase a home for under $500,000.”

Let’s look at the financial impact the FTHBI would have on a family buying a $200,000 and a $500,000 home.  With a 5% or $10,000 ($20,000 total with FTHBI) down payment on a $200,000 home, the buyers will save $114 a month or $1,372 a year. If they put $25,000 down ($50,000 with FTHBI) on a $500,000 home, they’ll reduce their monthly payments by $286 a month or $3,430 annually.

Now that you know exactly how the FTHBI could help you achieve your dream of home ownership, you can start planning your future to take advantage of the upcoming federal election, the staggeringly low fixed rate interest and softer markets in various regions of Canada.

Source: REW.ca – By Kara Kuryllowicz September 5, 2019

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What You Should Know About Collateral Charge Mortgages

 

I recently had clients who were refinancing their mortgage completely reject a very attractive offering from one of the big chartered banks.

Their reasoning? All of this bank’s mortgages are registered as collateral charges, and all of their online research into this topic spooked them completely.

Over the years, dozens of articles have been written on the topic of collateral mortgages, often tending to a negative bias. But as Rob McLister once said, and I agree with him, “collateral mortgages shouldn’t be portrayed as a supreme evil of the mortgage universe, when in fact they offer advantages to some.”

One can present persuasive arguments in favour or against collateral mortgages. But this client’s response compelled me to revisit the topic with fresh eyes and offer an updated perspective.

Mortgage loans are typically registered as a standard-charge mortgage or a collateral charge mortgage. So, let’s explore both types…

What Is a Standard Charge Mortgage?

A standard charge only secures the mortgage loan that is detailed in the document. It does not secure any other loan products you may have with your lender. The charge is registered for the actual amount of your mortgage.

If you want to borrow more money in the future, you’ll need to apply and re-qualify for additional money and register a new charge. There may then be costs, such as legal, administrative, discharge and registration fees.

If you want to switch your mortgage loan to a different lender at the end of your term, you may be able to do so by simply assigning your mortgage to a new lender at no cost to you.

Monoline lenders such as MCAP, First National Financial, CMLS and others default to standard-charge mortgages, unless offering a product such as MCAP Fusion (which has a re-advanceable HELOC component)

What Is a Collateral Charge Mortgage?

A collateral charge is basically a method of securing a mortgage or loan against your property. As explained here previously, “unlike a standard mortgage, a collateral charge is re-advanceable. That means the lender can lend you more money after closing without you needing to refinance and pay a lawyer.”

You can keep re-using this charge, and a new charge will only be required if you want to borrow more than the amount that was originally registered.

Most chartered banks offer both types of mortgages. A couple (TD Bank and Tangerine)  only register their mortgages as collateral charges.

Most chartered banks also offer a type of combination home financing, which consists of a mortgage component and a line of credit component. (Actually there could be several components.) For example, the Scotia Total Equity Plan (STEP) mortgage.

If you have a Home Equity Line of Credit, you have a collateral charge mortgage.

A collateral charge can be used to secure multiple loans with your lender. This means credit cards, car loans, overdraft protection and personal lines of credit could also be included.

Arguments people make in favour of collateral charge mortgages

1) If you wish to borrow more money during the term of your mortgage, you can tap into your home equity without the expense of a mortgage refinance. You can save legal fees. (This is assuming of course, your personal credit and income are sufficient to qualify for more money.)

2) If you have a mortgage and a Home Equity Line of Credit (HELOC), it may be structured such that every time you make a mortgage payment, the amount you pay towards your principal balance is added to your HELOC limit. Large available credit, used wisely, is usually a good thing.

3) Collateral charges are often best suited to strong borrowers with lots of equity. They might readily access contingency funds at no cost down the road. This could be by increasing their mortgage loan amount or adding a home equity line of credit to the mix.

Ironically, our same clients who objected strenuously to the collateral charge actually fit this profile. After refinancing their current mortgage, they will still have $500,000 in equity left in their home. Who knows, down the road they may want a Home Equity Line of Credit or to increase their mortgage. If they register their mortgage today for more than its face value, they could avoid all refinancing costs at that time.

Arguments people make against collateral charge mortgages

1) Some people trash the collateral charge because there is often a cost to switching lenders at renewal. I think that’s overstated and no longer factual.

It’s so competitive out there, if you’re still considered strong borrowers, chances are someone is willing to eat the costs to move you.

Also, some lenders are now offering no-cost switch programs for collateral charge mortgages. That was not the case a few years ago, and the list of such lenders is growing.

And keep in mind the moment you wish to change any material aspect of your mortgage (for example, the amortization period or the loan amount), it is no longer considered a switch, but rather a refinance—so legal and appraisal costs are in play anyway.

2) Others argue you could be offered less competitive interest rates from your current lender at renewal than you will be from a new lender. Again, if you are a strong borrower, someone is going to offer you low rates, and your current lender, under pressure, will often match or beat competitive offers. For that reason I view this as less of a concern.

3) Some lenders register a collateral charge for more than the loan amount—to as much as 125% of the appraised value of your home. Some just do this by default and others may ask you to choose the dollar amount to be registered. The rationale being you will retain the benefits of your collateral charge, even as your home increases in value.

This is where you might pause to reflect.

If, down the road, your personal finances take a U-turn, or you no longer qualify for additional financing with your current lender, then you might find a high collateral charge impairs your ability to seek secondary financing elsewhere.

For example, we are presently working with two Ontario-based clients who need a private second mortgage, but the collateral charge registered against their home is roughly the same as the value of their home. Even if their current mortgage balance is very low, unless a private mortgage lender’s lawyer can cap the collateral charge at that lower balance, these homeowners will find alternate lender sources are unlikely to lend new money.

4) A collateral charge mortgage is not only a charge on your home, but can include other credit you have with that same lender. These lenders have a “right of offset,” meaning they can collect from the equity in your home on any financial products you have (or co-signed for) that are now in default.

There is also the potential that when asked to pay out the mortgage at the time you leave your collateral charge mortgage lender, they can also add in overdraft, credit card and line of credit balances. Resulting in less funds to you than you expected and may need.

That said, it is unclear how often this happens, if ever, to borrowers with spotless records.

Industry insider Dustan Woodhouse points out, “(Even) co-signing a credit card or car loan for somebody (who then stops making payments) carries a risk of a foreclosure action against your property as a remedy for what was perceived to be an unrelated debt.”

The Wrap

Collateral charge mortgages are here to stay. More lenders are adopting them and you should have a good understanding of what type of mortgage you are being offered. Most of the time, it probably will not matter much to you how your mortgage is registered.

For all the arguments about extra costs if you wish leave your lender at renewal, as long as your borrower profile is strong you should be able to avoid any incremental out-of-pocket costs.

But if you want to take a conservative approach, consider the following:

Choose a standard charge mortgage if it really bothers you, and if you have a choice of lenders.

Or, when given the option, just register the collateral charge mortgage for the actual face amount of the mortgage, rather than a much larger amount.

In closing, Woodhouse has some sage advice: “It is perhaps a key consideration that one should in fact not have all their banking, credit cards and small loans with the same institution as their mortgage…mortgage with Lender A, consumer debt/trade lines with Lender B, and perhaps any business accounts with Lender C.”

Source: Canadian Mortgage Trends – ROSS TAYLOR  

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5 tips for insuring your first home

Photo: James Bombales

Before you take ownership of the property, your mortgage provider will likely want to see proof that the home is insured. This protects their interest in the building in case of damage or loss. Here are 5 tips for insuring your first home:

1. Be honest during your application

Buying insurance is not like buying a candy bar. It’s a contract with requirements from both parties. The most important thing to remember when purchasing insurance for your first home is to answer the application questions with as much openness and honesty as possible. This will help to ensure that the policy you purchase will be valid in the event you need to make a claim.

It’s worth doing some research on your home at this stage so that you’re prepared to answer any questions that may arise during a quote. For example, you may need to know about your home’s construction or the age of key systems, like the roof or furnace. Also, be clear about who’s living at the property and in what capacity. Any tenants occupying rental suites should be disclosed upfront.

Photo: James Bombales

2. Consider if you’d like to make renovations

Similarly, if you’re thinking about making changes to your home, be sure to let your insurance provider know before you start renovating. For most renovations, Square One will simply update your policy to cover the renovations, and follow up every now and then to check on your progress. There’s typically no need to buy a new policy to ensure your home remains protected. Just be sure to update the value of your home to include the renovations. That way, you won’t be forced to pay for them twice in the event of a total loss.

3. Check for lender-specific requirements

Most mortgage providers require confirmation of insurance before they’re willing to release the funds for your purchase. The terms of requirements differ with each lender, so be sure to identify what’s needed before you sign the dotted line.

For example, your mortgage providers will need to be listed as a “mortgagee” on your policy. This means you can’t simply cancel the coverage without the mortgage provider finding out. Most will also require an appraisal of the home’s value. Some mortgage providers will require a home inspection, or might have specific coverage requirements, such as Guaranteed Building Replacement coverage. This coverage guarantees that your home will be rebuilt in the event of a total loss, even if the cost to do so exceeds the limit of your coverage.

Photo: James Bombales

4. Pay attention to your home’s systems

Your home inspector should identify the type, age and condition of your home’s systems. If your home contains older or less reliable systems such knob + tube wiring or Kitec plumbing, you may want to consider upgrading to a more modern alternative. Not only will this provide some leverage for you to re-negotiate the purchase price, but upgrading to copper wire and pipes (considered the gold-standard) could help safeguard your home. Many providers, including Square One, offer a reduction in your home insurance premium if you’re willing to upgrade your home’s systems. (However, not all providers do – so if this is part of your decision-making process, check with your provider to be sure.)

5. Qualify for discounts to your premium

Homeowners with a history of continuous, claims-free coverage will often qualify for discounts on their premium– even if they’ve only previously held a policy for tenant’s insurance. Your insurance provider wants to see that you’re responsible and proactive about managing the risks associated with your home. And, because tenant insurance policies are typically cheaper than homeowner’s policies, the discount that’s applied to your future homeowner’s insurance premium may help to offset the cost of your tenant insurance today.

Source: Livabl.com – SPONSORED 

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First-Time Home-buyer Lessons

 

My husband and I bought our first home three years ago, and I’ll admit we made some mistakes along the way.

Here are 5 hard lessons we learned as first-time homebuyers.

1. We bought a very old house. Before we bought the home, we had it inspected by a reputable home inspector. In his report, he suggested that we have the house’s foundation assessed by an engineer. But we didn’t do that. Why? We were in too much of a rush to buy the house.

Lesson? Pay attention to the inspection report. After living in the home for about a year and a half, I called an engineer who told us a foundation wall had to be replaced–and soon. It wasn’t cheap.

2. Our agent told us that upping our offer by a few thousand dollars would only mean an extra $40, $50 or $60 a month on our mortgage. It doesn’t sound like much, but if interest rates go up spending thousands more on our home will hurt.

Lesson? Once you figure out your maximum price, stick to it. This is one thing we actually did well. In the end our offer was accepted at the price we were willing to pay, but upping our bid could’ve made paying the mortgage a lot tougher.

3. When you’ve been a renter for most of your life, it’s a shock to suddenly find yourself responsible for repairs. We hired a roofer who did a really bad job, and we had to pay another roofer to do the work a second time. Then I had to go to small claims court to try getting my money back from the first one.

Lesson? Shop around before hiring a contractor. I should have paid more attention to a couple of negative online reviews. You can also look up court decisions online to see if other customers have had problems.

4. We were able to put a 20% down payment on our home and had about $10,000 set aside for closing costs, taxes, home insurance and other expenses. It wasn’t enough.

Lesson? Set money aside, then set some more aside. You also need to budget for the unexpected. In the first year, we spent several hundred dollars on a new sump pump after our crawl space flooded. Last year, we spent a few hundred dollars on an exterminator for mice.

5. This past winter, while our foundation wall was being dug up and replaced, I called a real estate agent to talk about possibly putting our house up for sale. I was pretty fed up with the seemingly unending problems and stress. The good news was that our home had gone up in value and we could make a profit. Though we’ll stay put for now, at least we have an exit plan–as long as the housing market stays strong.

Lesson? Have an exit plan. Hopefully these hard-earned lessons can help you become homeowners. Or maybe decide to remain renters. Good luck!

 

Source: Tangerine.ca – by Dominique Jarry Shore Wednesday, July 3rd, 2019

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8 HOME INSPECTION RED FLAGS

8 HOME INSPECTION RED FLAGS:

Our gallery of home inspection nightmares (below) is good for a laugh, but a home inspection is serious business. It’s the buyer’s opportunity to make sure that the house they’re about to purchase doesn’t hold any expensive surprises.

A typical home inspection includes a check of a house’s structural and mechanical condition, from the roof to the foundation, as well as tests for the presence of radon gas and the detection of wood-destroying insects. Depending on the seriousness of what the inspection uncovers, the buyer can walk away from the deal (most contracts include an inspection contingency in the event of major flaws) or negotiate with the seller for the necessary repairs.

These are the red flags that should send a buyer back to the negotiating table, according to home improvement expert Tom Kraeutler of The Money Pit.

1. Termites and other live-in pests: The home you’ve fallen in love with may also be adored by the local termite population. The sooner termites are detected, the better. The same goes for other wood-devouring pests like powder-post beetles. Keep in mind that getting rid of the intruders is just the first step. Once the problem has been addressed, have a pest control expert advise you on what needs to be done in order to prevent their return.

2. Drainage issues: Poor drainage can lead to wood rot, wet basements, perennially wet crawlspaces and major mold growth. Problems are usually caused by missing or damaged gutters and downspouts, or improper grading at ground level. Correcting grading and replacing gutters is a lot less costly than undoing damage caused by the accumulation of moisture.

3. Pervasive mold: Where moisture collects, so grows mold, a threat to human health as well as to a home’s structure. Improper ventilation can be the culprit in smaller, more contained spaces, such as bathrooms. But think twice about buying a property where mold is pervasive — that’s a sign of long-term moisture issues.

4. Faulty foundation: A cracked or crumbling foundation calls for attention and repair, with costs ranging from moderate to astronomically expensive. The topper of foundation expenses is the foundation that needs to be replaced altogether — a possibility if you insist on shopping “historic” properties. Be aware that their beautiful details and old-fashioned charms may come with epic underlying expenses.

6. Worn-out roofing: Enter any sale agreement with an awareness of your own cost tolerance for roof repair versus replacement. The age and type of roofing material will figure into your home inspector’s findings, as well as the price tag of repair or replacement. An older home still sheltered by asbestos roofing material, for example, requires costly disposal processes to prevent release of and exposure to its dangerous contents.

7. Toxic materials: Asbestos may be elsewhere in a home’s finishes, calling for your consideration of containment and replacement costs. Other expensive finish issues include lead paint and, more recently, Chinese drywall, which found its way into homes built during the boom years of 2004 and 2005. This product’s sulfur off-gassing leads to illness as well as damage to home systems, so you’ll need to have it completely removed and replaced if it’s found in the home that you’re hoping to buy.

8. Outdated wiring: Home inspectors will typically open and inspect the main electrical panel, looking for overloaded circuits, proper grounding and the presence of any trouble spots like aluminum branch circuit wiring, a serious fire hazard.

The McMillan Group/Centum Supreme Mortgages Ltd.

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10 Signs to Watch out for to Avoid Renovating a Money Pit

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