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New Mortgage Insurance Premiums

 

Purchase Plus Improvements

HOME FINANCING SOLUTIONS – PURCHASE PLUS IMPROVEMENTS

Home Financing Solutions – Purchase Plus ImprovementsAre you on the hunt for a new home but can’t find exactly what you are looking for? You’re not alone. House hunters experience this scenario every day. With real estate prices increasing you may not be able to buy your dream home the first go-round.

Think about buying a fixer-upper. There are many potential properties that you can put your own personal stamp on. Why not renovate something?

There is a mortgage product called Purchase Plus Improvements (PPI). With the PPI the lender is able to provide additional financing to improve the subject property. This type of mortgage is available to assist buyers with making simple upgrades, not conduct a major renovation where structural modifications are made. Simple renovations include paint, flooring, windows, hot-water tank, new furnace, kitchen updates, bathroom updates, new roof, basement finishing, and more.

There are parameters to the PPI mortgage program:

  • Apply for up to a maximum of 10% of the as-improved market value
  • Utilize as little as 5% towards the down payment
  • At the time the application is submitted for approval the lender requires a construction quote to verify the work that is planned for the subject property
  • Renovation to be completed within 120 days
  • A third party (appraiser) must verify completion
  • One advance of the funds once the project is complete
  • Once the renovation is complete the lawyer would release the funds

PPI Scenario

Listed or Purchase Price: $450,000

Value of the Renovation: $45,000

As-Improved Value: $495,000 (new Purchase Price)

Maximum Borrow: $49,500 (10%)

Purchase Price: $495,000

Down Payment: $24,750 (5%)

Mortgage Amount: $470,250

Mortgage Insurance: $16,929

Total Loan: $487,179

Monthly Mortgage Payment: $2,146.17

For many, it is a daunting task to seek a mortgage plus a second type of financing to complete renovations, so why not opt for the PPI option?

With all the different types of mortgages out there, be sure to contact us so we can show you how we have a mortgage that best suits your specific needs!

   

4 Critical Questions to ask Your Mortgage Broker

The big 4!

4 Critical Questions You Must Ask Your Mortgage BrokerWe have often talked about understanding the personalities of your mortgage on our blog, but another part of that is working with your mortgage broker to ensure that you are getting the best product and sharpest rate possible. Asking critical questions will help you to not only understand your mortgage, but to also understand the benefit of working with a broker vs. the bank. It will also allow you to rest assured that you have flexibility and security in the mortgage that is selected for you. Here are our 4 critical questions to ask any mortgage broker you work with:

Question 1: What is the best rate you can get me?

Keep in mind, that if you are shopping for your own mortgage, you do not have access to the same resources that a mortgage broker does. A broker can do mortgage comparison to show you what you qualify for. In addition, a good broker can help you compare apples to apples and shops your deal to more lenders. However an important fact to remember is that the lowest rate is not always the best choice! Many lenders offer discounted rates that come with major restrictions and high penalties, this all has to be considered when looking at rate.

Question 2: What payout options are available with each loan?

Different lenders offer different payout options varying between 0-20% lump sum payments each year. Some institutions allow you to double your payments monthly and/or once a year. Others will allow you to increase your payments by 20% once per year. There are many varieties of prepayment options, so you really need a broker to seek out the best prepayment options for you.

Question 3: What are the penalties for paying out a mortgage early?

Penalties are three months of interest, or the interest rate differential (whichever happens to be greater) and pending on the type of mortgage you are in (fixed or variable). In another case, a lender may calculate your penalty based on the Bank of Canada’s 5 year posted rate as the penalty payout and not the discounted rate you are in. Unfortunately, since no one can predict the future, you can enter into a 5 year term, and you don’t know what may happen in 2-3 years. If there is a reason you need to get out of a mortgage, you must know your payout penalties.

Question 4: What about amortization?

Your amortization period is the number of years it will take you to become mortgage free. The more that you pay on a payment, the lower your amortization will be. A typical mortgage amortization is 25 years although some opt for 15-20 but others may need an extended amortization up to 35 years. There needs to be flexibility in amortization.

Note: Different lenders, especially working with people with bruised credit don’t always allow the extended 35 years.

Asking these 4 questions will help you to make critical decisions about your mortgage, and can give you peace of mind regarding your mortgage broker’s ability to get you the sharpest rate. Don’t be afraid to ask questions, and if you don’t understand something always ask for a more in depth explanation. Your home may be the biggest purchase you make in your lifetime, understanding the terms and working with a skilled DLC mortgage broker is worth an investment of your time.

   

About CHIP Home Income Plan

About CHIP Home Income Plan Through the CHIP Home Income Plan, homeowners 55+ can access up to 55% of the current appraised value of their principal residence.

The exact amount available will depend on the age of the homeowner and his or her spouse as well as the location and type of home. The funds are tax-free and there are no restrictions on how they can be used – with the exception that any outstanding loans secured by the home must be paid off. You might use the money to invest, to renovate your home, downsize with a new home purchase, or simply to improve your lifestyle. Homeowners can choose to take a lump sum or to receive funds over time.

No regular repayments are required; the loan does not become due until the home is sold or both homeowners move out. Interest is added on to the original amount borrowed. When the amount is repaid, all remaining equity in the home belongs to the homeowners (or their estate). You continue to own your home!

   

New Rules

New Mortgage Rules

Let us break down the new changes to the mortgage space for you, answering your most asked questions – What, Who and Why? – And how WE can help!

Why is the Department of Finance implementing these new changes? These new regulations are aimed at protecting the financial security of Canadians, supporting the long term stability of the housing market in Canada.

CHANGE:MORTGAGE RATE STRESS TEST TO ALL INSURED MORTGAGES What is it? Currently insured mortgages with a term of less than 5 years, and/or a variable rate mortgages or had qualifying standards which consisted of using an interest rate which greater of their contract mortgage rate (the rate the Lender was offering) or the Bank Of Canada’s conventional 5 year fixed posted rate. Under the new Department of Finance regulations, all insured mortgages, regardless of term (fixed or variable) will now have the same qualifying requirements as above. How does this affect a home buyer with less than 20% down payment? The biggest affect will be on the amount that the homebuyer will be able to qualify for. Since the qualification rate being used is the Bank Of Canada (BOC) conventional 5 year fixed posted rate, which is roughly 2% greater than current fixed rates, the amount that the home buyer will qualify for will be less. The minimum down payment, and the contracted interest rate are not affected by these new regulations. How does this affect a home buyer with more than 20% down payment? Depending on the Lender used, home buyers with more than 20% down will qualify within the same standards and guidelines of home buyers that have less than 20% down. Do I still have the option to refinance my home? Yes, depending on the Lender used, home buyers will still have the ability the refinance up to 80% of the value of their property. THE PROS ARE THIS: with lesser demand lends to a lower asking price. Your challenge through the upcoming months will be to rethink strategy with the home buyers, get them pre-approved again with the stress test factor included. Start the conversation to perhaps either increase down payment or start the process of looking for a new home within their NEW imposed budget.

CHANGE:RESTRICTED INSURANCE FOR LOW-RATIO MORTGAGES Mortgage loans that Lenders insure using low loan to value ratio mortgage insurance will be required to meet the eligibility criteria that previously only applied to high ratio insured mortgages. The new criteria for low-ratio mortgages will include the following requirements: Purchases of properties or mortgage renewals A maximum amortization of 25 years A maximum property purchase price below a million dollars Mortgage payments recalculated every 5 years for variable rate mortgages to conform to the original amortization schedule Minimum credit score of 600 Maximum gross debt service (GDS) of 39% of home buyers income and a total debt service (TDS) of 44% calculated by using the Bank of Canada conventional 5 – year fixed posted rate. Property must be owner occupied

CHANGE:NEW REPORTING RULES FOR THE PRIMARY RESIDENCE CAPITAL GAINS EXEMPTION What is it? Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year, the capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency. Who does it affect? Everyone who sells their primary residence will have a new obligation to report the sale to the CRA; however, the change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled. Why? While official say more data are needed, Ottawa is responding to extensive anecdotal evidence and media reports showing foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption. What is anINSURED MORTGAGE (HIGH RATIO) VS. NON-INSUREDMORTGAGE? (CONVENTIONAL/LOW RATIO) An Insured Mortgage is when a home buyer has less than 20% down, the mortgage is insured by either Canada Mortgage and Housing Corporation (CMHC), Genworth, or Canada Guaranty. This insurance provides security to the Lender in the event of home buyer default. A Conventional Mortgage is when a home buyer has more than 20% of a down payment and therefore does not require high ratio insurance. LENDER DISTINCTION Are all Lenders affected equally by the new regulations? Some Lenders take out insurance on all of their mortgages regardless if they are high ratio or not. Under the new regulations, brokers may need to work with Lenders that do not insure all of their mortgages in order to help home buyers qualify. QUALIFYING RATE is the BOC Conventional 5 year fixed posted rate. CONTRACT RATE is the rate offered by the Lender in which home buyer’s actual mortgage payments are based upon. To place this into perspective, in 2008, fixed rates were 5.99%. This is still much higher than the current qualifying rate of 4.64%. Interest rates that borrowers will actually get are still expected to remain near record lows.

   

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