Tag Archives: young families

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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Latest in Mortgage News: Stress-Test Rate Drops After a Year of No Change

 

The benchmark posted 5-year fixed rate, which is used for stress-testing Canadian mortgages, fell yesterday in its first move since May 2018.

The Bank of Canada announced the mortgage qualifying rate drop to 5.19% from 5.34%. This marks the first reduction in the rate since September 2016.

The rate change came as a surprise to most observers, since it’s based on the mode average of the Big 6 banks’ posted 5-year fixed rates. And there have been no changes among the big banks’ 5-year posted rates since June 21.

As reported by RateSpy.com, the Bank of Canada explained today’s move as follows:

“There are currently two modes at equal distance from the simple 6-bank average. Therefore, the Bank would use their assets booked in CAD to determine the mode. We use the latest M4 return data released on OSFI’s website to do so. To obtain the value of assets booked in CAD, simply do the subtraction of total assets in foreign currency from total assets in total currency.”

If that sounds convoluted, RateSpy’s Rob McLister tells us this, in laymen’s terms: “What happened here was that the total Canadian assets of the three banks posting 5.34% fell much more than the total Canadian assets of the three banks posting 5.19%. The 5.19%-ers won out this week,” McLister said.

Of the Big 6 banks, Royal Rank, Scotiabank and National Bank have posted 5-year fixed rates of 3.19%, while BMO, TD and CIBC have posted 5-year fixed rates of 5.34%.

“It’s one of the most convoluted ways to qualify a mortgage borrower one could dream up, McLister added. “It’s almost incomprehensible to think random fluctuations in bank assets could have anything to do with whether a borrower can afford his or her future payments.”

In his post, McLister noted the qualifying rate change means someone making a 5% down payment could afford:

  • $2,800 (1.3%) more home if they earn $50,000 a year
  • $5,900 (1.3%) more home if they earn $100,00 per year

Teranet Home Price Index Continues to Record Weakness

Without seasonal adjustments, the monthly Teranet-National Bank National Composite House Price Index would have been negative in the month of June. Thanks to a seasonal boost, however, the index rose just 0.5% from the year before.

Vancouver marked the 11th straight month of decline (down an annualized 4.9%), while Calgary recorded its 11th monthly decline (down 3.8%) in the past 12 months.

“These readings are consistent with signals from other indicators of soft resale markets in those metropolitan areas,” the report said.

But while Western Canada continues to grapple with sagging home sales and declining prices, markets in Ontario and Quebec are already posting increases following weakness in the first half of the year.

Prices in Toronto were up 2.8% vs. June 2018, while Hamilton saw an increase of 4.9% and London was up 3.3%. The biggest gains continue to be seen in Thunder Bay (up 9.2%), Ottawa-Gatineau (up 6.3%) and Montreal (up 5.4%).

Don’t Expect Housing Market to Catch Fire Again

Don’t hold your breath for another spectacular run-up in real estate as seen in recent years, say economists from RBC.

“A stable market isn’t a bad thing,” noted senior economist Robert Hogue. “This is sure to disappoint those hoping for a snapback in activity, especially out west. But it should be viewed as part of the solution to address issues of affordability and household debt in this country…It means that signs indicating we’ve passed the cyclical bottom have been sustained last month.”

Home resales in June were up marginally (0.3%) compared to the previous year, which Hague says provides “further evidence that the market has passed its cyclical bottom.”

Meanwhile, the national benchmark home price was down 0.3% year-over-year in June, “tracking very close to year-ago levels.”

Hague says these readings are good news for policy-makers, who he says want to see “generally soft but stable conditions in previously overheated markets.”

Source : Mortgage Broker News – STEVE HUEBL  

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The Benefits and Risks of Co-Signing for a Mortgage

 

Thanks to tighter mortgage qualification rules and higher-priced real estateparticularly in the greater Vancouver and Toronto areasit’s not always easy to qualify for a mortgage on your own merits.

You may very well have a great job, a decent income, a husky down payment and perfect credit, but that still may not be enough.

When a lender crunches the numbers, their calculations may indicate too much of your income is needed to service core homeownership expenses such as your mortgage payment, property taxes, heating and condo maintenance fees (if applicable).

In mortgage-speak, this means your debt service ratios are too high and you will need some extra help to qualify. But you do have options.

A co-signer can make all the difference

A mortgage co-signer can come in handy for many reasons, including when applicants have a soft or blemished credit history. But these days, it seems insufficient income supporting the mortgage application is the primary culprit.

We naturally tend to think of co-signers as parents. But there are also instances where children co-sign for their retired/unemployed parents. Siblings and spouses often help out too. It’s also possible for more than one person to co-sign a mortgage. A co-signer is likely to be approved when the lender is satisfied he/she will help lessen the risk associated with loan repayment.

Under the microscope

When you bring a co-signer into the picture, you are also taking their entire personal finances into consideration. It’s not just a simple matter of checking their credit.

Your mortgage lender is going to need a full application from them in order to grasp their financial picture, including information on all properties they own, any debts they are servicing and all of their own housing obligations. Your co-signer will go through the wringer much like you have.

What makes a strong co-signer?

The lender’s focus is mainly centred around a co-signer’s income coupled with a decent credit history. Some people think that if they have tons of equity in their home (high net worth) they will be great co-signers. But if they are primarily relying on CPP and OAS while living mortgage free, this is not going to help you qualify for a mortgage.

The best co-signer will offer strengths you currently lack when filling out a mortgage application on your own. For instance, if your income is preventing you from qualifying, find a co-signer with strong income. Or, if your issue is insufficient credit, bring a co-signer on board who has healthy credit.

Co-signer options

There are typically two different ways a co-signer can take shape:

  1. The co-signer becomes a co-borrower. This is like having a partner or spouse buy the home alongside a primary applicant. This involves adding the support of another person’s credit history and income to the application. The co-signer is placed on the title of the home and the lender considers this person equally responsible for the debtif the mortgage goes into default.
  2. The co-signer becomes a guarantor. In this scenario, he/she is backing the loan and vouching you’ll pay it back on time. The guarantor is responsible for the loan if it goes into default. Not many lenders process applications with guarantors, as they prefer all parties to share in the ownership. But some people want to avoid co-ownership for tax or estate planning purposes (more on this later).

gifting moneyNine things to keep in mind as a co-signee

  1. It is a rare privilege to find someone who is willing to co-sign for you. Make sure you are deserving of their trust and support.
  2. It is NOT your responsibility to co-sign for anyone. Carefully think about the character and stability of the people asking for your help, and if there is any chance you may need your own financial flexibility down the road, think twice before possibly shooting yourself in the foot.
  3. Ask for copies of all paperwork and be sure you fully understand the terms before signing.
  4. If you co-sign or act as a guarantor, you are entrusting your personal credit history to the primary borrowers. Late payments hurt both of you, so I recommend you have full access to all mortgage and tax account information to spot signs of trouble the instant they occur.
  5. Understand your legal, tax and even your estate’s position when considering becoming a co-signer. You are taking on a potentially large obligation that could cripple you financially if the borrower(s) cannot pay.
  6. A prudent co-signer may insist the primary applicants have disability insurance protecting the mortgage payments in the event of an income disruption due to poor health. Some will also insist on life insurance.
  7. Try to understand upfront how many years the co-borrower agreement will be in place, and whether you can change things mid-term if the borrower becomes able to assume the original mortgage on their own.
  8. There can be implications with respect to your personal income taxes. You may accumulate an obligation to pay capital gains taxes down the road. This should be discussed this with your tax accountant.
  9. Co-signing impacts Land Transfer Tax Rebates for first-time homebuyers. The rebate amount is reduced based on the percentage of ownership attributed to the co-signer.

Tips from a real estate lawyer

broker tipsWe spoke with Gord Mohan, an Ontario real estate lawyer, for unique insights based on his 22 years of experience.

“The cleanest way to deal with these situations is for the third party (which is typically a parent) to guarantee the main applicant’s mortgage debt obligation,” Mohan says. “This does not require the guarantor to appear on the title to the property, and so it prevents most later complications.”

Following are five key suggestions from Mohan:

  • Co-signers should seek independent legal advice to ensure they fully understand their obligations and rights.
  • All parties should have updated wills to address their intentions upon death and give their executor clear direction with respect to their ownership.
  • Many co-signers try to minimize future tax impact by opting for 1% ownership and having a private agreement that the borrowers will indemnify them or make them full owners if there is a tax bite down the road.
  • Some co-signers try to avoid future tax consequences completely by having their real estate lawyer draw up a “bare trust agreement”, which spells out that the co-signer has zero beneficial interest in the property.
  • A bare trust agreement can come in handy for the Land Transfer Tax (LTT) rebate,enabling the co-signer to apply for a refund from the Ministry of Finance – LTT bulletin.

Source – Canadian Mortgage Trends – ROSS TAYLOR 

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Everything you need to know about CMHC’s First-Time Home Buyer Incentive

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The federal government wants to make home ownership more affordable for young people and to do that it’s introducing the First-Time Home Buyer Incentive (FTHBI) this September. The $1.25 billion program, announced as part of the March federal budget, involves the government buying equity stakes in homes purchased by qualified home buyers, allowing for smaller mortgages that will keep monthly payments lower.

But how will the plan work? Below, we break down all the key details and take a look at who this new program is right for.

How the FTHBI works

The program will be administered by Canada’s housing agency, Canada Mortgage and Housing Corp. (CMHC), which will pay 5% of the purchase price for an existing home, and up to 10% for the value of a new home, in exchange for an equity stake. Once the homeowner sells, they’re obligated to repay the CMHC.

The fine print includes the following:

  • To qualify, you must be a first-time home buyer.
  • Buyers must have a down payment of at least 5% of the total purchase price, up to 20%.
  • The household’s income must be under $120,000, and the mortgage and incentive amount together can’t be more than four times the household income.
  • Only insured mortgages will be eligible, meaning this will be restricted to those with a down payment worth less than 20% of the purchase price.
  • Buyers will not be exempt from federal “stress test” regulations (a mandatory mortgage qualification using the five-year benchmark rate published by the Bank of Canada or the customer’s mortgage interest rate plus 2%)

Who is this for?

The program is for purchasers looking for a starter home but aren’t able to afford the monthly payments needed for a mortgage below $500,000. To qualify for mortgages in the $400,000 – $500,000 range, the household income would have to be close to six figures. Buyers would have to be willing to give up at least 5% of the value of their home to the federal government in exchange for lower monthly payments.

As an example, a couple earning up to the household income cap of $120,000 with a down payment of 5% on a new home would be entitled to an additional $48,000 provided by CMHC, as below:

Couple earning $120,000
$480,000 total purchase
-$24,000 down payment
-$48,000 matched by CMHC (10% for a new home)
= $408,000 mortgage

As both the household income and total purchase price are capped under the program, it’s worth noting that buyers with good credit and low debt might actually be able to borrow more money than the FTHBI would allow.

In this scenario, “the program forces you to buy less home than you otherwise would be able to. Whether consumers are disciplined enough to take part of that or not is the real question,” says Paul Taylor, president and CEO of Mortgage Professionals of Canada.

Buyers in the program will also want to consider the future value of their home over time. Is the neighborhood likely to increase in value? With a 5-10% equity stake in the home, CMHC will be along for the ride, both in the case of depreciation or appreciated value of the home.

“Vancouver North Shore is a great example. Now, it’s very much an outlier but if you bought the home in 1986 for $250,000 it’s probably worth $4 million now,” says Taylor.

Comparing markets

The most expensive home you can buy would be about $565,000 a government official told the CBC, which all but disqualifies purchases of detached homes or upscale condos in downtown Vancouver and Toronto. For example, the average home price in the Greater Toronto Area as of May 2019 was $838,540, according to the Toronto Real Estate Board.

CMHC acknowledged earlier this year that the average home in these markets won’t be within reach.

“It may not be a condo in Yaletown or a house in Riverdale, but there are options in both metropolitan areas to accommodate this program,” CMHC said in a press release in April. “In fact, around 23% of transactions in Toronto are for homes under $500,000 and 10% in Vancouver.”

This means that potential buyers will want to be comfortable living in the outer suburbs like Langley or Surrey in Vancouver, or Brampton and Mississauga in Toronto.

Recent residential listings for $472,000 (the average price for a home in Canada) 
*Compiled using listings found on Realtor.ca during the week of May 26th

Downtown Toronto Less than 30 listings
Downtown Vancouver Less than 100 listings
Calgary More than 600 listings
Winnipeg More than 2,000 listings

The program would seem to favour first-time buyers in smaller cities across Canada, at least when comparing options for buyers that tend to want to live in large cities downtown.

What you get for $490,000-$505,000

While this program can get you property up to $565,000 if you put the maximum down payment allowed for an insured mortgage (about 19.99%), we expect many who use this program will have the minimum 5% down payment and are looking to get into the property market sooner with help from the CMHC.

Based on that idea, we’ve compiled a look at some properties you can get in four major housing markets in Canada in the $490,000 to $505,000 price range. Take a look.

In Toronto: No houses listed but one-bedroom condos are available, typically 600-1,000 sq feet. Condos have more rooms and additional bathrooms as you get away from the city core. There is almost no supply below $300,000.

Here’s an example of what you might be able to get in the downtown core (one bedroom) in that price range.

 

 

In Vancouver: No houses listed but one-bedroom condos are available, typically 600-1,000 sq feet. More rooms and additional bathrooms as you get away from the city core.

Here’s an example of what you might be able to get (one bedroom).

In Calgary: You can find listings for two-bedroom bungalow houses downtown, along with two-bedroom condos over 900 square feet.

Here’s an example.

In Winnipeg: Limited supply at this price range. Detached houses are available however, with two-plus stories and multiple rooms. Large condos over 1,000 sq feet are available closer to a $300,00 price point.

Here’s an example.

Listing photos courtesy of Realtor.ca.

Source – LowestRates.ca –  Mike Winters on June 17, 2019

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It’s going to be hard to own a home in Toronto if you are not part of the 10%: report

In Toronto, you need more than $160,000 to buy a house; meanwhile, in Regina, the most affordable city, you only need $70,000

The Canadian dream of home ownership is slipping away: Tim Hudak5:17

Canadians looking for a home in major cities will likely have to look elsewhere, unless they count themselves among the country’s richest.

New analysis from RateSupermarket.ca shows that only those in the top income bracket can afford to buy homes in many of Canada’s major cities like Toronto, Vancouver and Montreal.

It cites a recent study from Zoocasa, a Canadian real estate website, which places the benchmark prices for Toronto at $873,100 and Vancouver at $1,441,000. Only the top 10 per cent can afford to live in Toronto and only the top 1 per cent can live in Vancouver.

Jacob Black, managing editor of RateSupermarket.ca, had this advice for potential homeowners: “Step one is to have a realistic idea of what you can spend. Step two is look outside the box that you might have looked in before,” said Black. “We’ve seen a trend develop in terms of cohabitation, multi-family homes, looking at options like condos, smaller apartments outside of the major city area.”

The RateSupermarket analysis compares these benchmark prices against the household income needed in order to afford a home in 12 Canadian citiesincluding Victoria, Hamilton, Kitchener-Waterloo, Calgary, Ottawa-Gatineau, London, Edmonton, Saskatoon and Regina.

RateSupermarket’s criteria for determining household income was to assume a 3.25 per cent five-year fixed mortgage rate, $10,000 in debt, a monthly lease vehicle payment of $300, a down payment of 20 per cent, and amortization of 25 years.

Using these figures, one’s household income in Vancouver would need to be above $240,000 in order to afford a home. In Toronto, a household would need more than $160,000.

A surprising result for Black was the difference between Toronto and Hamilton — a city that’s 70 kilometres away, which requires a more ‘reasonable’ $120,000 household income for a $630,000 home.

“I think that really highlights that there are opportunities in thriving vibrant areas,” said Black. “It’s just not necessarily in the same traditional areas you’ve been looking in or that you’d be expecting.”

This seemingly insurmountable unaffordability applies to starter homes as well. With these homes in Vancouver, only income earners in the top 25 per cent can afford them. The benchmark unit price is $656,900. Toronto is not far behind at $522,300.

Above all else, Black stresses a wise use of resources when it comes to the property market.

“I don’t see (the market) reversing. I don’t see a correction, but I think it’s important people do what they can with the resources they’ve got,” said Black.

Regina emerged as the most affordable city in the study, with a benchmark price of a home of $275,900 and a minimum household income of $70,000.

Here’s the full list:

  • Vancouver: House price: $1,441,000. Household income needed: $240,000
  • Toronto: House price: $873,100. Household income needed: $160,000
  • Victoria: House price: $741,000. Household income needed: $140,000
  • Hamilton: House price: $630,000. Household income needed: $120,000
  • Kitchener-Waterloo: House price: $523,720. Household income needed: $110,000
  • Calgary: House price: $467,600. Household income needed: $100,000.
  • Ottawa-Gatineau: House price: $444,500. Household income needed: $90,000
  • London: House price: $426,236. Household income needed: $90,000
  • Montreal: House price: $375,000. Household income needed: $80,000
  • Edmonton: House price: $372,100. Household income needed: $80,000
  • Saskatoon: House price: $301,900. Household income needed: $70,000
  • Regina: House price: $275,900. Household income needed: $70,000
Source: Financial Post Staff Nicholas Sokic May 30, 2019

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A first-time buyer’s guide to understanding Canada’s mortgage stress test

Photo: James Bombales

Livabl is here to help you understand the housing market. With this comprehensive explainer, our aim is to give you a 360-view of this important issue that has been affecting the market.

For prospective homebuyers, there are several financial hoops to jump through on the way to property ownership: growing a healthy downpayment, securing a preapproval, and finding a home that fits within budget, to name a few. Yet, even with years of financial planning, the dream of homeownership can quickly come crashing down if one cannot jump through the hoop that trips up first-time and repeat buyers alike: the mortgage stress test.

In January 2018, the Office of the Superintendent of Financial Institutions, a federal watchdog and the sole regulator of Canadian banks, implemented the Residential Mortgage Underwriting Practices and Procedures guideline — otherwise known as B-20. Under B-20, all new and renewing homebuyers who opt for a regulated mortgage lender are subject to a mortgage stress test, which evaluates the borrower’s ability to afford residential mortgage payments against higher interest rates. OSFI says that this policy protects Canadian homeowners from excessive debt and unaffordable mortgage payments.

“The stress test, which is one component of our B-20 guideline, is a safety buffer that ensures a borrower does not stretch their borrowing capacity to its maximum, leaving no room to absorb unforeseen events,” says OSFI in a statement to Livabl. “Borrowers across Canada face different risks that could impair their ability to pay their mortgage: changes to income, changes to expenses, changes to interest rates.”

However, the mortgage stress test does not affect everyone equally. In Canada’s most expensive markets, such as Toronto, where the average price of a home is expected to surpass $820,000 in 2019, buyers have been disqualified for mortgages by the test based on high down payment requirements. Meanwhile, in cheaper real estate markets, such as Regina, the RBC reports real estate prices fell in the third quarter of 2018. Yet, as the job market remains stagnant in some cities, meeting the income standards to pass the stress test creates a provincial disadvantage.

“The one downside is that it’s made it harder for some buyers to get into the market because what they can spend on a home now is a lot lower than what it was a year or two ago before the stress test,” says John Pasalis, Founder and President of Toronto-based brokerage Realosophy.

In other cases, desperate buyers are opting to avoid the stress test altogether by choosing to work with private lenders, who are not federally regulated by OSFI and offer much higher interest rates. Some have questioned the financial stability of the market with this increased presence of higher interest rate lenders.

“People are going to private lenders, and that brings on other risks,” says mortgage broker Elan Weintraub. “It brings on economic risks because if people are paying $4,000 a month for a private lender mortgage payment, they can’t go to restaurants, they can’t buy clothes, they can’t spend money on other things.”

If you’re a first-time buyer, don’t stress about the stress test. We turned to mortgage and real estate professionals to help answer key questions about the test.

Photo: CafeCredit.com

What does the stress test do?

All Canadian buyers are required to take the mortgage stress test, but how you are tested depends on the size of your down payment.

If you have a downpayment of less than 20 percent of the home purchase price, your mortgage is automatically insured. With the added insurance premiums, your payment rates are increased up to 4 percent higher. Insured mortgages will be tested between the interest rate offered by the regulated mortgage lender — typically, one of the top five banks of Canada — against the Bank of Canada’s conventional five-year mortgage rate (5.34 percent as of February 2019).
Those with uninsured mortgages and down payments greater than 20 percent, will be have their current rate tested, plus a two percent point increase, against the five-year bank rate. To pass the stress test, the calculated interest rate must meet the Bank of Canada’s qualifying rate or the contracted rate plus two percentage points, whichever is higher. For example, if your lender offers an interest rate of 2.99 percent for your uninsured mortgage, plus two percentage points, your calculated interest rate would need to meet the Bank of Canada’s minimum qualifying rate of 5.34 percent, since it is the greater of the two.

The mortgage stress test will consider elements such as your gross income, debt and expenses. A mortgage qualifier calculator can give you an idea how much income and down payment amount you’ll need to pass, but Pasalis recommends speaking with a mortgage broker before you begin the process.

“In the past, you could just go on some mortgage calculator and try to estimate yourself,” he says. “But with stress tests and all of these new mortgage rules, you want to go to a mortgage broker for them to tell you, in theory, what you qualify for, because that kind of really sets your expectation of what you can afford to spend on a home.”

Does it matter if I choose a variable or fixed-rate mortgage?

If you wish to secure a fixed-rate mortgage, the stress test may dash those hopes.

Fixed-rate mortgages are typically priced higher than variable-rate mortgages, as variable-rate payments fluctuate with interest rates and a higher proportion of a mortgage payment goes to principal. These higher fixed-rates can limit your options when applied to the stress test. As Weintraub describes, borrowers looking at a fixed-rate of 3.69 percent with an uninsured mortgage, plus two percentage points, wouldn’t qualify against the Bank of Canada’s rate.

“There are some clients who are so tight they can’t have a 5.69 [percent] stress test, they need a 5.34 [percent] stress test, so they have to get the variable rate even if they want fixed,” says Weintraub. “If you make a lot of money you can have both options, but if you have a very tight file, you might only have the option of variable.”

I want to change mortgage lenders. Will I have to retake the stress test?

A common criticism of the stress test is its tendency to trap borrowers with their current lenders. Buyers who purchased their home prior to the stress test are still required to participate. For those who won’t pass, it means staying with the same mortgage lender to avoid disqualification.

“Imagine that you want to renew your mortgage but you technically don’t qualify under the new stress test. You’re technically handcuffed with that same lender,” says Pasalis. “They can charge you eight percent interest and you can’t do anything about it.”

While OSFI ensures that the stress test, “contributes to public confidence in the Canadian financial system,” Weintraub questions whether this element of the policy benefits the market overall.

“If the bank knows the borrower cannot leave, how competitive are they going to be with their rates?” he says. “Some of my lowest interest rates are when their mortgage is expiring and I can move them to a new lender. But if they don’t pass the stress test, they’re basically forced to stay with their current lender, which doesn’t make sense.”

Photo: PlusLexia.com

Can I avoid the stress test?

If you’re a nervous test taker and want to sit out, then you do have the choice to not take the stress test — but at a cost.

The mortgage stress test does not apply to unregulated mortgage finances companies, called MFCs. While provincially regulated, these lenders operate in the private market, which makes loan approvals easier to obtain, but at higher rates. Weintraub suggests that an MFC lender should be reserved for short-term loan options.

“If you’re a first time buyer dying to buy a place and you go to a private lender, I don’t necessarily know if that’s the right solution,” says Weintraub. “I think private lenders are meant for very short term solutions, to help someone in a very specific situation, and then to get out of that situation ideally in 12 months or less.”

Pasalis says that MFCs tend to take on riskier borrowers, so higher interest rates compensate for that liability. But these higher payments, Weintraub says, can push new buyers into being house poor.

“It’s meant to be a stop gap, it’s not meant to be a long-term, sustainable way to borrow money, because it’s very expensive,” he says.

What happens if I fail the stress test?

Flunking the stress test is not the end — you can always retry later with a higher down payment or increased income. Weintraub says that the Bank of Mom and Dad could be available for some buyers looking for a mortgage co-signer or a boost in down payment funds. However, he recommends evaluating whether homeownership is truly worth it if this is the case.

“I would say that buying is not for everyone and sometimes we get into this whole, ‘I need to buy, I need to buy,’ mentality,” says Weintraub. “But there are certain situations where renting is a great option.”

While there has been increasing pressure for OSFI to provide policy relief for those in expensive markets, they remain firm on preventing “relaxed mortgage underwriting standards.” Pasalis says that there is always future potential for first-time buyer relief, but overall, exceptions to a national policy are unlikely to be made for individual market conditions.

“They can’t craft out different policies for Vancouver and Toronto and by municipalities,” he says. “I think the market will adjust to it.”

Source: Livabl.com –   

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Mortgage Leads From Facebook Messenger? Believe It.

 

Nine out of 10 mortgage professionals can’t generate good quality leads from the web. Are you one of them?

If you want to grow your mortgage business, you have to steadily and consistently generate good quality prospects and leads. However, the landscape is changing rapidly and moving in a direction where conventional marketing is becoming less effective at generating qualified and engaged prospects that you can turn into mortgage deals.

There’s both a huge problem and an even bigger opportunity here, depending on how you look at it. Smart brokerages will capitalize on this change in market behaviour and take advantage of it for significant growth.  Others will ignore it, and continue marketing themselves the way they’ve always done it, and risk being left behind.

With all the powerful tools we implement in our marketing and all the money we spend to get our message in front of the right people, we still fall far short of meeting people where they are and giving them what they need the way they want it.

But there has been no other option up to this point. Text-based email open rates continue to decline as inboxes are flooded with noise. And it isn’t slowing down.

  • Average open rate across industries: 20.8%
  • Average click rate across industries: 2.43%

 

People are shifting how they do everything from accessing music and media to searching for and purchasing products. It’s all going mobile through apps.

People are using their smartphones and tablets more than ever to search for and consume media, information, education, and to search for, research and purchase products and services.

And they’re using apps to do it instead of browsers.

Mobile More Prevalent Than Ever

  • People today have two times more interactions with brands on mobile than anywhere else—including TV, in-store, etc. (Google, 2017)
  • 80% of smartphone users are more likely to purchase from companies with mobile sites or apps that help them easily answer their questions. (Google, 2018)
  • 94% of respondents in a Facebook survey (of one million people) have a smartphone on hand while watching TV. (Facebook, 2018)
  • During TV shows, viewers paid attention to mobile 28% of the time, and during TV ads, they paid attention to mobile more than half the time. People ages 18–24 looked at their smartphones 60% of the time during TV ads, and people ages 45 and over did so 41% of the time (Facebook, 2018)

I hope it’s becoming clear that mobile is the future of the mortgage business and marketing online. Now, let’s look at how people are using their mobile devices.

Spam filters are becoming more strict and almost too good at restricting access, to the point where your content may not be seen by your prospective clients.

The experience is broken. When you click a link you have to leave your email client and move to another application to view the content. On top of that, people have become wise to text-based email marketing and are less responsive to it.

NBC News, 2018

What are They Doing on Their Mobile Devices?

Consumers are using apps on their mobile devices significantly more than web browsers to get things done.  And social media apps and messaging apps are at the top of the list.

It’s clear that people want an instant, seamless, frictionless experience that meets them where they are and gives them the power to do it their way. Apps give them that.

  • Apps account for 89% of mobile media time, with the other 11% spent on websites. (Smart Insights)
  • Users spend on average 69% of their media time on smartphones (Comscore, 2017)
  • In 2017, 95.1% of active Facebook user accounts accessed the social network via a mobile device (Statista, 2018)

Your customers are on Facebook and Facebook Messenger where it’s easier to reach them and get their attention.

What is Facebook Messenger & Why Should I Care?

Messenger is Facebook’s messaging platform and application. Think text messaging, but through Facebook and 100 times more powerful and better.

And 1.2 billion people use it monthly on both desktop through browser and on mobile through dedicated apps.

And everyone who interacts through Facebook Messenger has a Facebook profile, which means they can be targeted by ads.

Most importantly, this is a messaging app that people use to communicate with friends and family regularly so they’re very comfortable using it.  And it’s how they want to communicate.

So if that’s the case, wouldn’t it make sense to tap into that channel if you could?

Well you can, and it’s one of the best marketing decisions you can make, if you make it soon.

Why Use Facebook Messenger as a Marketing Channel?

Statistics show Facebook Messenger is a channel you should pay attention to.

  • Over 2 billion messages are sent each month between people and businesses. If you think Facebook Messenger is only for people and not brands, you’re wrong. (Inc)
  • 260 million new conversations are started daily. These are not just new threads between people, but between people and businesses too. This number will only grow. (Inc)
  • Messaging apps surpassed social networks in monthly active users sometime in 2015 according to a report on Business Insider.
  • Facebook Messenger has 1.3 billion users. That is more users than Snapchat, Twitter and Instagram combined. (Inc)
  • Messenger adds 100 million new users every five to six months. Facebook Messenger hit 1.3 billion users in September 2018. (Inc)
  • 64% of monthly Facebook users use messenger. (DMR, 2018)
  • Users have 7 billion conversations on Messenger every day. That’s over 2.5 trillion conversations every year. For comparison, Snapchat users send 3 billion photos per day. (Inc)

One of the Best Marketing Opportunities

By 2020, customers will manage 85% of their relationships with businesses without interacting with a human (Gartner).

Commerce is moving that way, whether you adopt it or not.

This tool and channel allows you to communicate with customers the way THEY want: one-to-one, on their phones or tablets, whenever is convenient for them.

It keeps your customers within the safety of Facebook and removes friction and barriers from the process, making it easier to move the relationship forward faster.

And, most importantly, Facebook Messenger marketing creates conversations, not leads. You don’t need a complex funnel when you interact with customers the way they want.

The result is a better experience for the customer and that translates to a better first impression of your brand, which leads to a whole host of benefits for both you and your clients in the long term.

So… let’s talk about what you would actually get out of Facebook Messenger marketing if you decided to implement it for your mortgage business.

Messenger Marketing – What’s in it for My Mortgage Business?

(Search Engine Journal, 2018)

1) Generates a conversation, not a lead.

In every other type of marketing you can do for your mortgage business, you’re never in an active conversation with the prospect in real time throughout the marketing process.

Marketing is meant to drive people to the conversation and make that conversation happen. Although, it can take a while. It’s never instant. Facebook Messenger makes this possible.

Now imagine this scene for a minute:

What if when you were watching a TV commercial, you could just walk up and press a button on the screen during the commercial and a conversation started right there between you and a person from that company?

That is exactly what happens with Facebook Messenger marketing. The customer clicks the ad and the conversation starts. The moment they click, they’re in an active dialogue with you and your brand.

That means you get to talk to them the moment they’re most interested in what you’re offering.

2) It gives the customer the simplest path to getting their problem solved without confusion.

It feels natural to them, so their guard comes down. Every time you have to leave one app for another to get something done, the friction reduces the likelihood you will turn them into a customer.

Most sales and marketing funnels are comprised of landing pages in one tool, a website on another platform, text-based email marketing in another tool, analytics in another tool…you get the picture.

That means that the user is going to have to figure out how to navigate through landing pages and multiple emails and website pages to finally get to the point where they can take the next step.

The image below is a comparison of a customer’s experience through a conventional landing-page funnel versus a Facebook Messenger funnel experience.

  • Each dot represents a touch.
  • Each red arrow represents a change from one software, app or device to another throughout the process.

The entire conversion process can take place almost entirely within Messenger. It’s a straight path to a solution.

That means prospects trust your brand faster and convert into a qualified lead and customer faster.

3) It’s automated, but not too much.

Once the user clicks the ad, they go directly to Facebook Messenger where the conversation is handled automatically by a Messenger bot.

A “bot” is simply a software version of a robot that you program to converse with users through Facebook Messenger just like a person…well, almost.

This means that your virtual assistant (the bot) is having a conversation behind the scenes with your prospective client, qualifying them, giving them more resources, gathering information about them, getting them interested and ready to talk to someone.

Then that prospect is handed over to the business to take over by phone or a scheduled appointment.

All of the lead generation and prequalification happens automatically.

4) Open up a channel four times more effective than email to communicate with your prospective customer whenever you want.

For someone to get value from what you send them, they have to consume it/access it/find it.

Facebook Messenger has an 80% open rate compared to text-based email with only 24%. Facebook Messenger has a 56% response rate compared to text-based email with less than 3%

Using Messenger Marketing in your Mortgage Business

Marketing is becoming harder and more expensive. People aren’t listening to channels like email and phone calls like they used to. They’re migrating to apps on their mobile devices to search for your services and products and do everything else.

With this huge shift in consumers to mobile, you need to have a strategy that focuses on reaching them there and engaging with them the way they want to do it – through apps like Facebook Messenger.

Let me ask you two quick questions.

1) Is your mortgage business positioned to take advantage of the mobile channel and channels like Facebook Messenger marketing rather than get left behind?

And…

2) Do you want to continue to generate leads that are getting more and more expensive by the day that hardly ever turn into conversations, let alone customers?

If your answer is “No” to either or both of the above questions, Facebook Messenger marketing could be the solution you need. If you want to explore this form of marketing for your mortgage business, or you have some questions, let’s connect and talk. Feel free to email me directly at javed@empression.ca

Source: Canadian Mortgage Trends – Javed S. Khan 

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