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Canadians tell their stories of how mortgage rules put the dream of home ownership out of reach


Canadians tell their stories of how mortgage rules put the dream of home ownership out of reach






Dear Prime Minister Justin Trudeau and Finance Minster Bill Morneau;

One year ago, your government introduced new mortgage rules that put the dream of home ownership out of reach for many Canadians. Although well intended, the changes have reduced the average Canadian family’s purchasing power by upwards of 20 per cent, and have had the unintended consequence of making housing less affordable for Canadians.

Instead, Canadians who were once able to purchase or re-finance their home are being shut out of the market or forced to pay more interest to traditional lenders as competition in our sector declines.

The new stress test that requires all new mortgages to qualify at the greater of either the Bank of Canada benchmark rate or the contract rate offered, means that Canadians who previously could reasonably afford a mortgage payment at the standard rates no longer qualify.

Additionally, changes to portfolio insurance requirements have resulted in some monoline lenders being unable to insure mortgages, thus reducing overall competition, which hurts consumers, regardless of what solution they use for their homes.

Canadians who are now unable to fulfill their dream of owning a home have been telling us their stories and we’ve been listening. We’ve documented their stories and we think it’s important for you to see them.

We’ve posted these stories at www.NewRulesHurt.ca and are sending every Member of Parliament a printed copy so they can read firsthand how the new mortgage rules have impacted the lives of hard working individuals and families in their constituencies.

Please take the time to read these stories and seriously consider changing mortgage rules to make them fair and equitable for all Canadians trying to purchase, or keep their home.

Gary Mauris
President and CEO
Dominion Lending Centres

 

DON’T ASSUME ANYTHING WHEN DEALING WITH MORTGAGE FINANCING

A lot of people get into hot water when they assume that because they’ve qualified for a mortgage in the past, they will qualify for a mortgage in the future.

This article has one point to make and it’s this:

Don’t assume anything when dealing with mortgage financing!

And if that’s all you take away, that’s enough!

Just because you’ve qualified for a mortgage in the past, doesn’t mean you will qualify for a mortgage in the future, even if your financial situation has remained the same or gotten better. The truth is, things have changed over the last year, and securing mortgage financing is more difficult now than it has been in recent memory.
The latest changes to mortgage qualification by the federal government has left Canadians qualifying for about 20-25% less buying power. On top of that, a lot of the “common sense” guidelines that lenders would use in determining your suitability have been replaced with non-negotiable hard and fast rules.
As mortgage professionals who arrange financing for our clients everyday, I keep up to date with the latest changes in the mortgage world, understand lender products, and have my fingers on the pulse of what is going on.
From experience, I can tell you that having a plan is crucial to a successful mortgage application. Making assumptions about your qualification, or just “winging it” is a recipe for disaster.
If you are thinking about buying a property, we encourage you to contact us for a free consultation. Whether it be to develop a plan for a future purchase, a pre-approval or develop a financial strategy for paying your mortgage sooner, we are here to help.

   

BANK OF CANADA RATE CHANGE – SHOULD I LOCK IN?

This month, the Bank of Canada increased their lending rate for the 2nd time in as many months. The changes in the Prime Lender Rates means that those with a variable mortgage rates will have seen that their mortgages rates adjusted alongside the changes to Prime Rate. For those of you with variable rates, the first thing that probably crossed your mind was “should I lock in?”

Even though your interest rate may have increased, it does not mean that you should immediately lock into a fixed rate mortgage. An associate from B.C, Dustan Woodhouse had this to share about the increase:

“If your discount from Prime (now 3.20%) is 0.50% or deeper – then the variable rate product remains a really great place to be.

If your discount from Prime is 0.25% or less, then depending on which lender you are with you may consider converting to a fixed rate, BUT…

Keep in mind the penalty to prepay (i.e. refinance or sale of property) a variable early is ~0.50% of the mortgage balance, whereas if in a (4yr/5yr or longer) fixed rate mortgage the penalty can be closer to 4.5% of the mortgage balance ***depending upon which specific lender you are with and how long of a term you lock in for.

It is usually to the lenders greater benefit that you lock into a fixed rate, rarely is it to your own benefit.”

I could not have summarized it any better myself, so I won’t try.

So what should you do?
The first thing that you should be doing is avoiding the immediate draw or feeling of “I need to lock in”. There are several different aspects of your mortgage and personal financial situation that should be considered prior to locking in. There are many questions to ask yourself prior to locking in and most of which the lenders are unlikely to ask you. Your lender is re-active, not pro-active – you need to be pro-active. And sometimes being pro-active results in no action being taken at all.

Simply because the Bank of Canada increased interest rates twice, this does not immediately mean that they will do it again. There are many economic factors outside of their control that will impact their decisions regarding future potential increases.

Presently, the key is not to react quickly. If you have questions about your specific situation and how the increase may impact you, feel free to give Dominion Lending Centres mortgage specialist a call to chat about things in more detail. Allow us the opportunity to ask the questions that need to be asked prior to making a quick switch.

Food for thought…
Back in 2010 rates increased 0.25% three times, and that sat stagnant for nearly five full years before two 0.25% decreases back downward.

In other words the last time Prime was pushed as high as it stands today, it sat there for five full years. And was then cut.

The next Bank of Canada meeting is October 25, 2017.

   

CREDIT SCORES: HERE’S WHAT YOU NEED TO KNOW

The interest rate you pay on loans for every major purchase you make throughout your lifetime depends on various factors, and is dependent on your creditworthiness – everything from the mortgage on your home to your car loan or line of credit.

And, given today’s ever-changing mortgage requirements and rising interest rate environment, your credit score has become even more important.

Your first step towards credit awareness and well being is to know where you stand. Request a free copy of your credit report online from the two Canadian credit-reporting agencies – Equifax Canada and TransUnion Canada – at least once a year.

This will also help verify that your personal information is up to date and ensure you haven’t been the victim of identity fraud.

Newly established credit

If you’re new to credit, you may wonder why your credit score pales in comparison to your friend’s.

Payment history is a key factor for both Equifax and TransUnion. As well, if you don’t talk to your friends about money, you may not realize that their financial situations are different from yours. Your friend with the better credit score may carry less debt than you, for instance.

Using credit properly helps keep your credit score healthy, as well as comes in handy when you don’t have the cash immediately on hand to pay for an expense. Planning for expenses helps alleviate reliance on credit – and the payment of interest.

If you use credit cards and lines of credit to your full advantage, you’ll never have to pay interest on these revolving credit products. In fact, you can use the borrowed money for free if the full amounts are paid on time.

Forgot to pay a credit card bill?

Your credit generally only takes a hit after you miss two consecutive payments.

You’ll likely see a drop of 60-100 points on your credit score instantly, and your credit card provider may end up increasing your interest rate.

Every point counts, however, so you obviously don’t want your credit score to take a hit, particularly if you plan on applying for a major loan – such as a mortgage or car loan.

Know your creditworthiness

Following are some key components that help determine your credit score.

  • Credit card debt. Aside from paying bills on time, the number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Credit card usage has a more significant impact on credit scores than car loans, lines of credit and so on.
  • Credit history. More established credit is better quality If you’re no longer using your older credit cards, the issuers may stop updating your accounts. If this happens, the cards can lose their weight in the credit formula and, therefore, may not be as valuable. Use these cards periodically and pay them off.
  • Credit reporting errors. Always dispute any mistakes or situations that may harm your credit score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau(s) aware of the situation.

Do you have questions about your credit score or creditworthiness? Feel free to contact us for further information or to help plan your path to an improved credit rating today!

   

REVERSE MORTGAGES – NO, WE DON’T WANT YOUR HOME!

Your Parents Owe $500,000 to CRA…Can a Reverse Mortgage Help?Reverse Mortgages have had their share of misconceptions. In fact, we are often approached with false assumptions and unfounded facts about the product that steer the public to think of the product in a negative light. This article will cover one of the most common myths and the real facts behind this myth that has long been misinterpreted.

Myth: One of most common misconceptions that we hear time and time again is that you will lose ownership of your home to us.

Fact: This statement is false. HomEquity Bank, the provider of the CHIP Reverse Mortgage has taken several measures that ensure the protection of your equity.

1) Retain ownership of your home: Just like with any other mortgage, your home is used to secure the loan, which means that HomEquity Bank is registered as a standard charge on title. You, as a customer DO NOT transfer ownership of your home to us. In fact, once it’s time to pay back the mortgage you or your heirs have the choice to settle the loan however you or they want. Selling the home is the most common option, but it is not mandatory.

2) Our conservative lending practices: In our ads and on our website, we remind the customers that they can get up to 55% of the value of their home in a reverse mortgage loan. Of course, this amount does depend on the borrower(s) age, their property type as well as the location of their home. But as a rule of thumb, the younger the borrower is, the less they will qualify for and the older the borrower is, the more they will qualify for. This is because we want to make sure that the borrowers reverse mortgage loan doesn’t exceed the value of their home.

3) The potential value appreciation of your home: Many people don’t realize that their home may appreciate in value, however the interest that accrues only accumulates on the small borrowed amount of the home. That is why we say in our marketing pieces that “99% of homeowners have money left over” when their loan is settled.

This graph illustrates how the interest is affected when a home appreciates in value. For illustration purposes, we have used 3%, a modest level of home appreciation, which allows for equity preservation after a borrower takes out a CHIP Reverse Mortgage for 15 years. This example illustrates the following:

  • Home appraised at $500,000.
  • Homeowner(s) qualify for $200,000 (40%) of the value of their home in a CHIP Reverse Mortgage.
  • The homeowner(s) take the CHIP loan for 15 years before they move, sell or pass away.
  • The home appreciates at 3% and the new home value after 15 years is $778,984.
  • The principal plus interest total $457,288 and the estate still has $321,696 in equity (41% of the home value at time of sale).

Home Equity Preservation Graph – CHIP Reverse Mortgage
The following graph is for Illustration purposes only *

Home Equity Preservation Graph – CHIP Reverse Mortgage The following graph is for Illustration purposes only

4) Negative equity guarantee – Many people ask, “what happens if the house doesn’t appreciate in value, and in fact depreciates?” Our negative equity guarantee ensures that if your home depreciates in value at the time the home is being sold, and the loan amount due is more than the sale amount of the property, the homeowner or the heirs will not be financially penalized for being on title of the home. In fact, HomEquity Bank, will pay the difference between the sale amount and the loan amount when the loan amount due is more than the sale amount of the property. However, just like all other home equity loans, the homeowner(s) must keep their property taxes up to date, and maintain the condition of their home. If these conditions are met, the borrowers will never owe more than the fair market value of their home, when the home is sold.

The above measures are all the reasons why a CHIP Reverse Mortgage customer will not lose their home to the lender. A CHIP Reverse Mortgage provides a great solution for a growing number of Canadian retirees. For more information on this solution for homeowners 55+, contact us today!

 

* The illustration uses conservative values:

  • Example based on the national price of Canadian homes of $500,000 (Average home price in Canada is $519,521 according to the CREA, February 2017)
  • Example based on CHIP Reverse Mortgage advance of 40%
  • Home appreciation of 3.00%. Average home appreciation is 7.16% annually. (Source: CREA, Canadian Real Estate Association 15-year national house appreciation average, February 2017). HomEquity Bank makes no representations on future housing market performance.
  • CHIP interest rate of 5.59%. The Annual Percentage Rate (APR) is 5.79%, which is the estimated cost of borrowing for 5 years expressed as an annual percentage. The APR includes interest and closing costs.
   

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