Banks and other Mortgage lenders reduced their mortgage qualifying rate last week from 5.34% to 5.19%. The main reason for this was to stay within the 2% range which is now added to the average discount rate for qualifying mortgage borrowers. A conventional mortgage fixed rate is now averaging 3.19% and the High Ratio mortgage (CMHC Insured) fixed rate is averaging 2.79%. At 5.19% the qualifying rate stays roughly at 2% above the average discount rate to stay in line with the new mortgage qualifying rules. Does this make much of a difference to a borrower? Roughly $8000.00 in extra borrowing power.

There are many misconceptions surrounding reverse mortgages. Since the most common misconceptions center around interest rates, here are some “interest-ing” facts to help educate your clients:

Interest rates are only slightly higher than a home equity line of credit.
For those having trouble qualifying for a line of credit through a financial institution, this difference in rates can become negligible. Income requirements are often a barrier when seeking approval for a HELOC – since the CHIP Reverse Mortgage is specifically designed with retired Canadians in mind, qualifying is much easier.

Interest rates on credit cards are significantly higher.
Not only do these products charge significantly higher interest rates, but regular payments on principal and interest are required. With a CHIP Reverse Mortgage, no monthly mortgage or interest payments are required – payment is only due when the clients no longer live in their home.

Interest is compounded. While the interest is compounded semi-annually, HomeEquity Bank also provides homeowners with the option to make interest payments to help keep interest from accruing.

Compounded interest will mean owing more than the home’s value when the loan is due. This is not true. The CHIP Reverse Mortgage has a no negative equity guarantee. Should the loan amount exceed the property sale amount, HomeEquity Bank covers the difference between the sale price and the loan amount.

Mortgage Renewal and Options

Renewing your mortgage can be very straight forward especially if you just stick with your existing lender.  If you are not adding on any extra money or a secured/Home line of credit to your mortgage (this is a refinances) a straightforward renewal involves signing your renewal papers and that is it.  The downside however or challenge with renewing with your existing lender is that they do not always offer you their best terms.  You are there client already so why bother?  Switching your mortgage to a New Lender on a renewal requires a bit more paperwork, typically an update of income, credit and signing new loan papers however there are no appraisal or legal costs involved so very straight forward.  For an extra 45 minutes work you could save yourself thousands of dollars by looking at other options.  Speak with your Mortgage Broker and have them to the research.  It is always good to start the research 4 to 5 months out from the renewal date because most lenders can lock in your rate 120 days before closing.

Robert Clancy

Residential and Commercial Mortgage Agent

————————————————-

SAFEBRIDGE Financial GroupBroker License #10524

Direct Line | 416-899-1467

Fax | 1866 385-4049

Facebook: https://www.facebook.com/bestratesmortgages/

E-mail | robert@safebridgefinancial.com

Website|www.bestratesmortgages.ca  

Some simple tips.

Here are three examples that show the power of accelerated payments and adding an extra few bucks to your mortgage payment.  Most people think they need to pay thousands against there mortgage each year to pay it down aggressively and therefore never do anything.

Here is a typical situation.  Let’s take a $500,000 mortgage over 25-year amortization period with an average rate of 3.25%.  (we know through the terms rates will change.).   Taken a regular monthly payment of $2430.83 over 25 years, your total interest paid will be $229,248.96.

So, let’s say you took a biweekly or weekly accelerated payment which means you pay every two weeks or every other week.   It is still the same monthly payment amount broken down into 2 payments or 4.  Your total interest paid is $200,056.46 and you pay down your mortgage in 23 years  so, 2 years sooner.

Let’s take a biweekly accelerated payment and add $100.00 to each payment or if you took a weekly payment that would be $50.00 to each payment.  Your total interest paid $176,742.08 and you pay down your mortgage in 18 years or 7 years sooner.  WOW.  So, by taken an accelerated payment and adding an extra $100.00 every 2 weeks you pay down your mortgage in 18 years and pay $52,506.00 less in interest then if you stuck with a regular monthly payment.

What is a mortgage refinance?. This is an existing property owner who has a mortgage and wants to increase that mortgage loan amount or owns a home with no mortgage and wants to put one on there. The new funds can be used for so many purposes. Borrowers can use for a down payment on a new property purchase. Borrowers can use to consolidate debts into a lower rate mortgage therefore increasing their cash flow and paying down their debts more efficiently. Borrowers can use to renovate their home or even help a child pay for Tuition. Their are many ways to tap into the equity in your home through a mortgage refinance.

Self Employed Mortgages

There are two different types of mortgages for self-employed borrowers.  One is based on qualified income (proof of income on using tax returns) and the other is non-qualifier income (using bank deposits rather than tax returns).  There are big differences in lender policy based on each type of borrowers.

Borrowers who qualify based on provable income: 

Once you are self-employed the mortgage broker or lender will ask to see your last two years personal T1 Generals and Notice of Assessment Income Tax Return.  If Incorporated two years financial statements too.  The two year average of the personal tax returns is then used to determine your borrowing power.  If the income is enough to support the mortgage you need, then you as a borrower, can put down as little as 5% for a purchase, refinance up to 80% of your property value, purchase rental properties, and even access secured lines of credit.  You are treated just like a borrower on salary or hourly income. Documents required are:

• Proof of self-employment for at least two years such as business license, Articles of Incorporation.

• 2 years personal tax returns to confirm income and no taxes owning and if incorporated two year financial statements too. If taxes are owing, they need to be paid before the mortgage closes.

Borrowers who qualify based on non Tax Retrun income:  

One challenge that can pop up with self-employed borrowers is their personal net tax return income is not high to carry the cost of their mortgage they require. Self Employed borrowers get to write off their expenses against income however, as a result, their net income is reduced below the actual real income/gross income. These borrowers can fit into what we call, the Self Employed Stated Income Program or.  A borrower can state their income rather than have to prove it on paper.  The Income stated has to be reasonable based on the type of employment. Usually 90K is the cut off therefore, borrowers needing to state more will need to show financial statements or borrow from a more high risk lender.

If the income is reasonable and the lender accepts the income, other documents required would be:

• Proof of self-employment as per above and last year Notice of Assessment to show no taxes owning. If taxes are owning they need to be paid.
• Minimum of 10% down to purchase a property
• Can refinance up to 80% as well but mortgage needs to be insured. To avoid insurance, the loan to value has to be 65% or less.
• It is rather difficult to purchase a non-owner occupied investment property under the Stated Income Program. The borrower would need to borrow through a higher risk lender.  Secured lines of credit are not available unless through a higher risk lender.

In today’s market we are finding that more and more self-employed clients who are not showing enough income on their NOA’s to support their mortgage need to go through an ALT- A lender. Typically it means a minimum of 20 % down payment and rates are about 0.50% to 1% higher with an additional 1% fee. It is not the end of the world, in a market where mortgage rates are still very low paying in the 3% range for your mortgage is cheap. As a rule of thumb we stick to a 12 month term if we place clients with an ALT-A lender giving them the opportunity to switch over to the A side upon renewal. The client is able to qualify with an A lender at the end of the 12 month term if their NOA income has increased, the mortgage rules have lightened up or a combination of both.

Contact Robert Clancy today to find out how to take full advantage of this program:

Robert Clancy, AMP,

Mortgage Agent

SAFEBRIDGE Financial Group

Tel:  416 899-1467

Fax: 1866 385-4049

Email: robert@safebridgefinancial.com

www.bestratesmortgages.ca

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1. Income Qualifications and Supporting Documentation required; when you are obtaining a mortgage for the first time, you will need to provide specific documentation in regards to your employment situation. For salaried individuals, typically an employment letter, recent pay stub, and 2 years notice of assessments are usually enough. If you are self-employed, the lender will require 2 years notice of assessments, 2 years T1 GENERALS (tax returns), and company financial statements for the last 2 years if incorporated. Typically some documents are asked for such as: 2 years statements of business account, articles of incorporation, and business license.
2. Appraisal; An appraisal is performed by an appraiser who is a licensed, regulated professional who will come and evaluate the price of your new home. Most lenders that you go with will request this as they want to confirm the purchase offer price is in line with what the property is actually worth. This is not a cost that is covered by your lender and it must come out of pocket. The typical appraisal ranges from $300-$500 dollars, depending on the size of the property and what is being assessed. We [the mortgage brokers] contact the appraisal company on your behalf to schedule a time. Typically from there, the appraiser will contact the real estate agent who is the listing agent for that property to schedule a time to appraise the property.

In regards to determining what usually dictates the need for an appraisal are the following: If your mortgage is high ratio [down payment is less than 20%], then no appraisal is typically required. If your mortgage is conventional [20% down payment or more], then typically it is required. Self-employed individuals and properties bought as rentals always typically require an appraisal as well.

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New to Canada Program requires minimum of 5% down.
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