There are a couple of options for the down payment for the purchase. You can use other investment assets if available, potential borrow from a friend or family member or use the Equity in your existing home by way of a Secured Line of Credit.  A secured line of credit can be added to your existing home for the down payment.  When you do eventually sell the home you then pay down the line of credit which is completely open.

I have implemented the secured line of credit strategy for a lot of my clients, so If things are not going to plan when trying to sell your home do not panic! We have options.

In my experience it is best to look at all the possible scenarios when setting up your mortgage pre-approval for the purchase, so you are prepared.  This will give you a piece of mind that you have a back up plan if needed

It typically takes two different lenders to implement this strategy, one for the line of credit refinance and one for the purchase mortgage so therefore another advantage to working with a mortgage broker who can access both lenders at the same time.

Contact me to find out more and to discuss a lending strategy for YOU.

At the end of last week CMHC announced they would lower their debt ratios limits on insured mortgages reducing an applicant’s borrowing power, so not what we would want going forward.

Debt Ratios Explained: 

When qualifying for a mortgage there are two debt ratios that a lender and insurer use to see how much an applicant can borrow.

GDS: which on insured mortgages is currently 39% of gross income includes the monthly mortgage payment, property taxes, heat, and condo fees (if any) and cannot be more then 39% of an applicant’s gross income.

TDS: is the same as GDS but will include other monthly debt payments such as car loans, credit cards etc.  This currently cannot be more then 44% of applicant’s gross income.  Once an applicant reaches either of these debt ratios, they have reached there maximum borrowing power.

The impact of CMHC lowering there debt ratios to GDS 35% and TDS 42% is roughly $30,000.00 in mortgage.  So, someone able to borrow $500,000.00 is now reduced to $470,000.00 using CMHC guidelines.

It is not all doom and gloom.  Right now, there are three insurers in Canada, CMHC, Genworth and Canada Guaranty.  The other two insurers have not to date made any changes.  Not all mortgage lenders use CMHC and some use two or all three insurers so that is why working with a mortgage broker makes sense to make sure your mortgage is submitted to the right lender and insurer allowing the maximum borrowing permitted.

This change is for CMHC Insured mortgages only so does not include refinances where one takes out new money,  20% or down payment on conventional mortgages or any mortgage outside of insurers guidelines.

Please do not hesitate to reach out with any questions.

Given the current economic climate I know paying down your mortgage is not a priority for a lot of people right now but if not today then sometime in the future you can apply these strategies.

There are two main ways to pay down your mortgage.
• Accelerate your payment frequency to weekly or bi- weekly (both have the same affect) so you pay every other week or every two weeks. On a typically 25 Year amortization this strategy can shave roughly 3 years off your mortgage payments. Not bad for just a payment frequency change.
• Lump sum payments. You can apply lump sum payments by increasing your mortgage payment, applying a lump sum payment periodically or a combination of both.

Here are some examples.
• $500,000.00 mortgage say on a 5 Year fixed at 3.00% over 25 years. Current monthly payment $2366.23. Mortgage balance in 5 years $427,372.90. Amortization remaining 20 Years.
• Bi-weekly accelerated payment $1183.11 so half of the monthly payment above. Mortgage balance in 5 Years $414,521.14. Your mortgage balance is $12,851.76 lower. Amortization remaining 17 Years and 4 months.
• How about you increase that bi-weekly payment by just $50.00 so now the payment is $1233.11. Mortgage balance in 5 years $407,516.50. Now the difference between the initial monthly regular mortgage balance is $19,856.40 and that is just in the first 5-year term. Amortization remaining 16 years. Naturally you can increase your payment by more then $50.00 if you have the cash flow. Typically mortgage lenders will allow anywhere from 15% to 20% additional pre payment of the mortgage amount annually.

So, you do not have to win the lottery or be able to make large lump sum payments to pay down your mortgage faster and save thousands in mortgage costs.

As mortgage Brokers we get to discuss mortgage rates daily and to be honest trying to explain why one rate is different to another based on the type of mortgage, amortization etc. can become repetitive over time however I do realise that there is a lot of unclear information out there especially on the internet regarding mortgage rates so I thought I would try to explain why there are different residential mortgage rate quotes in the market and why you may find yourself in one rate box and not the other. (Please note I am referring to A lending products i.e. best terms and rates. B or Alt A lending fall under another category)

Most online rate quotes will quote the lowest possible rate in the market to draw you in without an explanation on the mortgage product it is attached too. As a result, this can leave a borrower confused and frustrated when applying for a mortgage but then been told sorry you do not qualify for that rate.
Mortgage rates are related to the type of mortgage product you are obtaining and although credit and income are very important factors for qualifying it is the mortgage product type that will dictate the rate once approved.

Insured Mortgages are those mortgages that are backed by one of the three mortgage insurance companies in Canada. The most well know is CMHC however there is also Genworth and Canada Guaranty. A mortgage can be insured in two ways. One is a High Ratio mortgage. This is when a borrower purchases a property with less then 20% and therefore pays the insurance premium which is added to the mortgage. For this type of mortgage, the purchase price must be under $1,000,000.00 to be insured and the amortization can be no longer then 25 years.

Insured mortgage with no premium. If you are purchasing a mortgage with 20% or more down, you can get an insured mortgage (this just means your mortgage is insured in the back end by the insurer), but you pay no insurance premium. Again, the purchase price must be under $1,000,000.00 and a maximum of 25 years amortization.

Both these options above will get you the lowest rates on the market and typically these are the rates you see quoted on-line. A third option is If your mortgage is up for renewal and you do not take out any extra money (refinance) you can also qualify for insured mortgage pricing with no insurance premium. You must meet the same criteria as above, property value under $1,000,000.00 with a maximum of 25 years remaining on your amortization.
Current insured 5-year insured mortgage rates are between 2.69% and 2.79% on a fixed and 2.85% to 2.95% on a variable.
There is also No Frill insured mortgages available where one can get another 10bps to 20bps off the mortgage rate, but you give up something in return. There are clauses such as a bonafide sale clause: this means you cannot break the mortgage throughout the term unless you sale the property or higher penalties clause means you pay a lot more in penalties to break the mortgage. Be aware of these No Frill mortgages. They look tempting but you can get burned if you run into a situation where you need to get out of the mortgage before the term is up. You need to decide on whether the extra savings is worth the risk or not.

Non-Insured mortgages (sometime called conventional mortgages) are mortgages that have a purchase price over $1,000,000.00, or a refinance (adding more money to the mortgage or taken out a secured line of credit) or an amortization of 30 years. So, for example, if you are purchasing a home that is over $1,000,000.00 you cannot get an insured mortgage and you must have at least 20% down. If you are refinancing to consolidate debt, take out equity for a down payment on another purchase, add on a secured line of credit or something else this mortgage cannot be insured. Benefits of non-insured mortgages are that you can extend the amortization to 30 years to keep your payment lower, qualify for more borrowing, you can take out equity or consolidate debt. Mortgage rates for 5-year non-insured mortgages are in the 3.04% to 3.09% for fixed and 3.30% to 3.40% for variable.

So, as you can see there is a spread between insured and non insure mortgages rates. If you are purchasing for over a $1,000,000.00, refinancing or need a 30-year amortization then you cannot get the insured pricing, so the rate quote you see online of 2.79% etc. are meaningless to your requirements.

Rental properties whether a purchase or refinance come with a rate premium of another 20bps to 25bps above the conventional non-insured mortgage rate pricing.

It is not just about the rate: When deciding on your mortgage focus on the mortgage that best fits your needs. Maybe you can qualify for an insured pricing at 20% down but the payment over 25 years is too high. In this case you take a 30 Year amortization with a higher rate, but your monthly cash flow is much better because of the lower payment which suits your lifestyle and that is the most important thing to you right now. You can always increase your mortgage payment later to pay down your mortgage more aggressively.

Have a great weekend

Robert Clancy
Residential and Commercial Mortgage Agent
————————————————-
SAFEBRIDGE Financial Group
Broker 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

The Government approved a reduction in the mortgage stress test qualifying rate for High Ratio mortgages beginning April 6th. This is for High Ratio Mortgages where the borrower is putting down less then 20% and needs mortgage insurance. We do expect the conventional mortgage (non-insured mortgages with 20% or more down payment) stress test which is currently at 5.19% also to follow suit but nothing is official yet.

What this means to the borrower: Currently when qualifying for a mortgage the qualifying rate used is The Bank’s Posted Rate of 5.19%. The Government Department of Finance will use their own weekly Median rate + 2.00%, so today would be around 4.89%, to be implemented on April 6th. The rate will be set each week. So today 4.89% qualifying rate vs the current qualifying rate of 5.19% would add roughly another $15,000.00 to a mortgage so nothing to get overly excited about but could help on a tight approval.

Let me know if you have any questions

Have a great day

Robert Clancy
Residential and Commercial Mortgage Agent
————————————————-
SAFEBRIDGE Financial Group
Broker 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

Under the New Lending landscape Self Employed or Commission borrowers have taken the brunt of the tighter mortgage rules. Ten years ago a self employed or commission borrower could sign a form declaring how much they made and as long as it made sense for their industry, the borrower had access to A lenders offering the lowest rates and terms just like a salary or hourly employee.
Today things are a lot different, however there are still plenty of options for self employed and commission earners.
A Lenders are lenders offering the best rates and terms with the lowest down payment of 5%. For Self Employed or Commission borrowers whose average two-year Net Income supports the mortgage amount needed to qualify you still get access to the best rates and terms through A lenders with as little as 5% down.
If your Net Income does not meet the income requirement for the mortgage but your Gross income does, then there is a still an option to qualify through an A lender. The key here would be the Gap between your Gross and Net income. For example if your Gross income before deductions is $100,000.00 and your Net is $20,000.00 and you need $90,000.00 to qualify for your mortgage then the chances are slim, If however your Gross is $100,000.00 and your Net is $65,000.00 and you need $90,000.00 to qualify for your mortgage it may be possible. It is case by case in these scenarios however if the lender accepts the income you qualify for the best rates and terms under the A lenders. Under this program though the minimum down payment is 10% for High Ratio Financing compared to 5% for regular income employees and for Conventional financing (you pay no insurance premium) is 35% compared to 20% for regular employees.
B Lenders are lenders who accept alternate documents to support the income. So, if an A lender is not possible the B lender is the best option. The increase in B lending over the past three years has been phenomenal as more and more self employed, and commission borrowers look to this area for their mortgage financing.
A B lender will look at your bank deposits to confirm your income rather then your tax returns. So, for example say you make $100,000.00 but only show $20,000.00 net income on your tax return but need $90,000.00 to qualify for the mortgage as along as your bank deposits add up to $90,000.00 then you are fine. The lender will need a minimum of six months bank deposits and do a twelve average. They may reduce some of the business income deposits based on expenses for your industry type.
Pros and cons of B lending.
Pros: 1. you can qualify based on bank deposit income, 2. Your rate is roughly only 1.00% higher then A lender (there is usually a 1% to 2 % fee), 3. Typically your term is just for one year so at renewal we have the option to try switch back to an A lender.
Cons: 1. You do need a minimum of 20% down. Your rate is higher but not by much and you pay a fee of 1% to 2%.
Conclusion. Everyone wants to fit into the A lending box for the best rates and terms however this is not always possible. I look a it this way. Right now a self employed or commission borrowers who show little net income on their tax returns have an option of increasing there Net Income to obtain A financing and pay more taxes OR they can go with a B lender and pay roughly 1% more in interest with a small fee. If you do the Math it is allot cheaper to pay an extra 1% in interest, then to declare more income and pay more taxes.

Hi, I just want to say Welcome to 2020 and wishing you the best of health and prosperity.

2019 was a roller coaster year within the mortgage markets. Most of us are finally coming to terms with the constant Government regulation and the impact and sleepless nights it has caused. We are hoping for a more stable 2020 and based on feed back so far the consumer seems to be finally adjusting to the new lending land scape.

In 2019 the 5 year fixed mortgage rate fluctuated between 2.69% to 3.24% with the prime/variable rate remaining steady. (Remember always do your home work when taken a fixed rate option). The mortgage rate and terms do change depending on the mortgage lender type (A or B lending) (High Ratio or Conventional), property type and location. Current High Ratio is at 2.94% with conventional at 3.19%. On line quotes do not disclose the full picture.

We do finally expect the Bank of Canada to reduce the prime/variable rate in 2020 which is good news for borrowers holding variable rate mortgages. Canada is the only Country out of the big G7 who has not reduced its prime rate. 2020 will be the year as a slowdown in the world economies will be a factor. The Bank of Canada has been cautious in lowering its prime rate based on our real estate valuations. Lower rates may put pressure on these prices again especially if supply remains a issue.

We are expecting some new innovated mortgage products to hit the market this year and hopefully a kinder lending approach to self employed and commission borrowers. I will keep you updated as these products are launched. January tends to be a “get your house in shape month” so not much happening right now but Spring will be here soon so expect some noise shortly.

A strong emphasis for me this year is to help my clients build there real estate portfolios by tapping into their existing equity in other properties. Toronto is going to continue to grow aggressively. There will be some knocks and slow downs along the way but we have a long way to go.

I just returned from Ireland where I spent the Christmas holidays with my family. I had a great time and always find connecting with my roots grounding to my spirit and soul but not too kind to my liver. So here is a quote from my Mom who is in my thoughts, “just look forward and do your best, as long as you have your health, stick to your principles and values and be kind the rest will fall into place”.

Here’s to a fabulous 2020 and looking forward to connecting with you soon.

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 do 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.

Here are two 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.).   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 out a biweekly or weekly accelerated payment which means you pay every two weeks or every other weekly.   It is still the same monthly payment 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 weekly 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.

Self Employed Mortgages

There are two different types of mortgages for self-employed borrowers.  One is based on qualified income (proof of income using tax returns) and the other is non-qualifier income (using bank deposits ).  There are big differences with the lender’s guidelines/polices based on each type of program

Borrowers who qualify based on provable income: 

This is where the borrowers will get access to the A lenders or the lenders offering the best terms and rates with a minimum of 5% down so the same as salary or hourly income borrowers.  Documents required to qualify are last two years personal T1 Generals and Notice of Assessment Income Tax Return.  If Incorporated two years financial statements too.  The two-year net income average on the personal tax returns is then used to determine your borrowing power.  If the income is enough to support the mortgage required, then you are fine.  If not, then you need another option?

Documents required for this program are:

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

• 2 years personal T1 Generals and Notice of Assessment 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 not using Tax Return income:  

One challenge that can pops up with self-employed borrowers is their personal net tax return income is not high enough to qualify for the mortgage they require. Self Employed borrowers get to write off their expenses against Gross income which is great however for the A lenders offering the best terms and rates they only use the net income on your tax return to qualify. 

In recent years this has presented a large swing in how mortgages are qualified for self-employed borrowers.  As a result of the tightening of lender guidelines for self-employed borrowers the Self-Employed Stated Income Program is becoming the main borrowing option now.  Under this program the lender will look at your business bank deposits to determine the income.  They typically requite 6 to 12 months of bank statements and will look at personal accounts too if one does not have a business bank account.  This program comes with an average of 1% higher interest rate (not that bad at all) and 1.5% fees based on mortgage loan amount.  The term is typically just 12 months.  Reason been is that we can then look at the situation in 12 months to see if we can move the borrower back to the A side for better terms and rates. 

A question I put to my self-employed borrowers who need this program but are a little annoyed about paying a higher rate with fees is this “Would you rather pay an extra 25% in taxes to get a lower rate or 1% higher on the mortgage rate” Believe me the 1% higher on mortgage rate is a lot cheaper even with the fees.

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 the Self-Employed Stated Income Program.  Main requirements are 20% down payment and 6 to 12 months of bank deposits. Documents required would be

• 6 to 12 months bank statements shown deposits.  The lender may ask to see some invoices to match some of the deposits depending on the borrower’s industry.
• Proof of 2-year self employed by Articles of incorporation or Business License.

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