Ontario Land Transfer Tax Refunds For First-Time Home Buyers

Are you a first-time home buyer? Do you know you can save up to $2,000 on land transfer tax in Ontario. It occurred to me that not every first-time homebuyer considers land transfer tax when they are budgeting for their purchase or applying for their mortgage and as far as closing costs go, this is a big one to overlook, particularly if the purchaser does not qualify for any rebates.  The purpose of this article is to shed some light on how land transfer tax is calculated and the criteria for rebates that are currently available for first-time homebuyers.

How to Calculate Land Transfer Tax

In Ontario, the provincial government collects land transfer tax on the disposition of land or a beneficial interest in land pursuant to the Land Transfer Tax Act (Ontario).  On February 1, 2008, the City of Toronto instituted its own land transfer tax which mirrors, and is paid in addition to, the Ontario land transfer tax. There are various transfers that are exempt from both taxes, such as a transfer between spouses pursuant to a written separation agreement or a transfer between a trustee and beneficial owner of land.  For the purposes of this article, I will focus on land transfer tax that is payable upon the sale of residential real estate in the City of Toronto, assuming that no exemptions apply.

Ontario and Toronto land transfer taxes are payable on the consideration that passes from the transferee to the transferor of property and the amount, if any, of a mortgage or debt being assumed by the transferee as part of the transfer.  The current formulas for determining land transfer taxes are as follows:

Ontario land transfer tax:

• 0.5% – on the first $55,000
• 1.0% – on portion between $55,000 – $250,0001.
• 5% – on balance over $250,000
• 2.0% – on anything over $400,000

Toronto land transfer tax:

• 0.5% – on the first $55,000
• 1.0% – on portion between $55,000 – $400,000
• 2.0% – on anything over $400,000

Land Transfer Tax Rebates for First-Time Homebuyers

For first-time homebuyers, the Ontario government offers a land transfer tax rebate of up to $2,000.00 and the City of Toronto offers a land transfer tax rebate of up to $3,725.00.  To qualify for these rebates, the homebuyer must meet the following criteria:

1. they must be at least 18 years of age;
2. they must occupy the home as their principal residence within 9 months of the date of transfer;
3. they cannot have owned a home, or an interest in a home, anywhere in the world at any time;
4. if they have a spouse, their spouse cannot have owned a home, or an interest in a home, anywhere in the world while being their spouse;
5. in the case of a newly constructed home, they must be entitled to a Tarion New Home Warranty; and
6. they cannot have previously received an Ontario Home Ownership Savings Plan-based refund of land transfer tax.

If there is more than one homebuyer and only one of them is a first-time homebuyer, that first-time homebuyer will only be able to claim a fraction of the rebates equal to their interest in the property (so if they only acquire a 50% interest in the property, they will only be able to claim 50% of the rebates).  As well, if a first-time homebuyer has a spouse who owned a home or an interest in a home anywhere in the world while being their spouse, neither one of them will qualify for the rebates; if, however, the first-time homebuyer’s spouse sold his or her home or interest in a home prior to becoming their spouse, then the first-time homebuyer can claim their 50% share of the rebates and their spouse’s 50% share of the rebates (for a total of 100% of the rebates) even though the spouse is not, by definition, a first-time homebuyer.

Confused yet?  Here’s an example to help clarify how the rebates work:
Consider a couple, Jack and Jill, who are not spouses but are purchasing a home together for $400,000.  Jill is a first-time homebuyer and Jack is not.  The land transfer tax that would be payable by Jack and Jill is as follows:

• Provincial land transfer tax:  $4,475.00
• Municipal land transfer tax:  $3,725.00
• Total land transfer tax:  $8,200.00

Assuming that all of the criteria for the rebates are met and Jack and Jill are each acquiring a 50% interest in the home, Jill can claim up to 50% of the rebates for a total savings of $2,862.50 (50% of $2,000 and 50% of $3,725).   If Jill acquired a 75% interest in the home, she would get a corresponding increase in the amount of rebates she could claim – in that case, Jill could claim up to 75% of the rebates for a total savings of $4,293.73 (75% of $2,000 and 75% of $3725).

If Jack and Jill were spouses of one another, the outcome would depend on whether Jack sold his home before becoming Jill’s spouse.  If Jack did not sell his home before becoming Jill’s spouse, then neither one of them would qualify for the rebates; if, however, Jack sold his home prior to becoming Jill’s spouse, then Jill could claim her 50% share of the rebates and Jack’s 50% of the rebates (for a total of 100% of the rebates).

At the end of the day, it is important to consider land transfer tax and available rebates when budgeting for your first home purchase.

Source: Baker Lawyers,Ontario LTTR

10 Mortgage Mistakes First Time Home Buyers Can Avoid

You’re excited! You’ve decided to dip your toe into the rushing river that is Canadian real estate and buy your first home. But the roaring sound of that river can be overwhelming. Where to start? Your mortgage financing is one of the most critical aspects of your first purchase. And you want to get it right.

With so many choices, brands and products you might prefer to take an ostrich like approach and bury your head in the sand to avoid the racket. While you don’t need to understand all of the finer details of mortgage financing you should be mindful to avoid some common mistakes that I’ve observed over the years. Below are 10 mortgage mistakes to avoid for first time home buyers.

1. Not Checking Your Credit  Your credit score is very revealing and allows the lender to get a clear picture of your credit risk.  The first thing you should do when considering a mortgage before even talking to a mortgage professional or lender is have a look at your credit report. This way you can make sure that you have time to make any necessary improvements before applying to lenders. You can check your score on the Equifax website.

2. Applying for New Credit At The Same Time As Your Mortgage Part of the algorithm that calculates your credit score looks at how recently you’ve requested credit. Seeking credit through a car loan or credit card while you’re applying for a mortgage can negatively effect your score. If possible it is best to avoid applying for credit. By the same token, it is best to avoid large purchases like automobiles because the large monthly payments will effect the total mortgage amount you qualify for.

3. Failing to Look at the Total Housing Payment I often sit down with first time home buyers who think that buying a house costs less than renting because the mortgage payment is less than their rent. What they fail to realize is that there is a lot more to home ownership than mortgage payments. We use the acronym PITH in the mortgage industry to account for all aspects of your monthly payment (Principal + Interest+ Taxes+ Heat). You also need to account for your insurance costs and/or condo fees.

4. Skipping The Pre-Approval Before shopping for a home, make sure you can actually qualify for financing by getting a pre-approval. A pre-approval means that a mortgage lender has had a look at your credit and considered your income to determine how much mortgage you can realistically afford and in turn how much house you can buy. 

5. Failing To Prepare Your Assets Believe it or not one of the most challenging parts of the mortgage approval is showing your liquid assets to the lender for the down payment. Lenders are required by the Anti Money Laundering and Terrorism Act to request a 90 days look back of all your accounts to see the source of your down payment. It is not enough to just show a deposit in your account 7 days before closing. Gifts are allowed under particular circumstances.

6. Job Hopping Lenders are looking for income stability and consistency. If you have been a busy bee jumping from one employer to the other the lender may decide not to approve your mortgage. If you are changing jobs within your industry there is leniency depending on the overall strength of your application but if you are making any major changes it might be best to wait until after your purchase or hold off buying for a few months at least until your probationary period has expired. 

7. Not Shopping Around The mortgage market is dynamic. At any given time different lenders could be offering great interest rate specials or products that suit your needs. Mortgage professionals work directly with the lender, and know the best rates and deals. They are like your personal shoppers. The best part is you don’t pay for their services.

8. Chasing Exotic Mortgage Programs When it comes to mortgage lenders if a deal sounds too good to be true then it probably is. In a market where most borrowers are fixated on rate it is easy for lenders to structure mortgages in such a way that the rate looks good but they eliminate all other privileges or worse can’t be broken without paying all of the interest due over the term of the mortgage.

9. Forgetting to Lock Your Rate You may feel that you don’t need a pre-approval because you have strong credit and plenty of income and down payment. The pre-approval also serves an equally important function other than giving you a figure to work with. The pre-approval works as a ratehold to lock in an interest rate for 120 days. If rates increase while you are searching for a home you have the benefit of a protected rate.

10. Not Reading Your Mortgage Documents When you finally make an offer to purchase a home the lender converts the pre-approval into a commitment letter where they spell out the specifics of the mortgage. This is an important document to review and read as it contains all of the terms and conditions of the mortgage including your obligations, costs and privileges. I always read it together with my clients to translate it into normal English. Make sure you understand it and ask questions.

Source: Son of a broker

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Need a down payment for a mortgage? Get it from the government!

Looking to purchase a home but do not have the the required down payment? Look into the Ontario Affordable Housing Program (AHP) it could be the solution for you.

In 2005, the federal and provincial governments signed a new Canada-Ontario Affordable Housing Program Agreement (AHP). With this commitment, the federal, provincial and municipal governments will have invested at least $734 million through the Canada-Ontario Affordable Housing Program. The AHP comprises four components: Rental and Supportive, Housing Allowance/Rent Supplement,
Northern Housing and Homeownership. Under the Homeownership component of AHP, lower-income renters can apply for interest-free down-payment assistance loans to purchase a home.

What Type of Home Can I Buy?
The home can be new or resale. It may have a selling price at or below the maximum selling price set for your municipality. The home must be modest in size, relative to community standards.
A home in which the applicant – or any member of the applicant’s family – have an ownership interest is not eligible for purchase under the Homeownership component of the AHP.
Some municipalities offer down-payment assistance in partnership with local builders. Check with your municipality for affordable homeownership developments in your area.

The Application
Application forms are available from the housing department of your municipality or through an organization delivering the program in your area. Applicants must submit their application with all necessary documentation (see What You Will Need). In order to participate and be eligible for the program, applicants must be able to secure mortgage financing through a lending institution. If your primary lending institution is requesting mortgage insurance, you may be eligible for additional flexibilities through the Canada
Mortgage and Housing Corporation (CMHC).

Terms of the AHP Loan
The AHP loan is for a period of 20 years. No interest is charged on the loan.
The unit must remain the sole and principal residence of the applicant for the entire 20-year period. It may not be leased to an other party. On the 20th anniversary date of the agreement, the loan is automatically forgiven, provided there has been no default under the terms of the loan. If the home is sold before 20 years or the loan is in default, the amount of the down-payment assistance plus a percentage of the capital gain (appreciation) realized through the sale may be payable to the municipality. In most circumstances, if the house is sold for less than the original purchase price, down-payment assistance would be waived provided the unit is sold at fair market value and the purchase and sale of the unit is an arm’s-length transaction.
The loan may be paid at anytime throughout the 20-year period. The owner would be responsible for repaying the amount of the AHP loan in full, and a percentage of the appreciation of the home based on the current market value of the home at the time of repayment.

WHAT YOU WILL NEED
• Agreement of Purchase and Sale
• Proof of mortgage approval by primary lending institution
• AHP Homeownership component application form
• Photo identification
• Proof of household income

Purchasing a Home
Once the offer on the home is accepted, approved applicants must provide an Agreement of Purchase and Sale for the home and a mortgage agreement from the primary lender.

AHP Loan Agreement
The AHP loan agreement outlines the terms of the down-payment assistance. The amount of the AHP Homeownership loan will be secured on title through an AHP mortgage. No interest is charged on the loan.
On the date of closing, the AHP loan is advanced and put towards the down-payment on the home.

Am I Eligible?
An Interest-Free Loan Under the AHP, every region in Ontario has been allocated a specific amount of funding to assist low to moderate-income rental households to purchase affordable homes through interest free down-payment assistance loans. It will be up to each municipality to determine the value of the loan for each purchaser, in accordance with mandatory program requirements. Applicants must be at least 18 years old and have a combined household income at or below the maximum eligible income limit for their area. Applicants who own or partly own a property do not qualify for down-payment assistance under the Homeownership component of the AHP. 

Contact your Mortgage Professional to learn more.

The benefits of mortgage default insurance

In Canada, there are two different products commonly referred to as mortgage insurance. One is mortgage creditor insurance, which continues to pay your mortgage payments in the event of death or disability. But the other type of insurance--mortgage default insurance--also offers important benefits.

If you're buying a home and borrowing more than 80% of its value, your mortgage is required to be covered by default insurance. This insurance protects lenders from loss in case a loan isn't repaid. With this protection, lenders are willing to offer loans with very low down payments--as little as 5% of the loan amount.

For loans without default insurance, most lenders require a down payment of 20%, which is a lot of money in today's housing market. Default insurance allows you to enjoy the benefits of homeownership sooner, and insured mortgages are generally approved more quickly.

Default insurance is available from organizations like Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial, who charge a premium based on the percent of your home's value that you borrow. 

Thinking of buying an investment property?

Are you thinking of buying a property to rent out to others? Perhaps even to your own adult children, to help them get a start on life? Before you decide, do your research. There’s a lot more to rental properties than buying a building and hanging out the “Vacancy” sign.

First of all, there's a wide range of choices when you're looking for income properties. For example, you can buy:

Single family homes or multi-family ones
Commercial or industrial buildings that can be rented to business people.

You can spend less than $100,000, or invest millions of dollars. The question is, will it be worth it?

Is a rental property a good investment?

This can vary, depending on a number of factors. For example:

How will you finance your purchase? It may make sense to buy your house with no money down. But taking on a huge amount of debt for the sake of rental income may lead to financial disaster.

How much income can this property generate? What are rents like in the same area? Vacancy rates? Local market conditions determine the rents you are able to charge. Look for a place where the rental income covers the cost of buying the property and paying for it.

How much will it cost to maintain this property? You can buy a building that needs a lot of work, or one that is newly renovated and will need minimal repairs. You can buy a property that you can manage on your own, without extra help. Or, for larger properties, you can hire an onsite superintendent or a property management company.

What are the advantages of a rental property investment?

You can deduct certain expenses from your income reducing the taxes you owe. The list includes:
- Mortgage interest
- Property taxes
- Insurance
- Maintenance/upgrades
- Property management
- Utility bills (if you include them in the rent)

Losses from your rental property can turn into tax relief. If your expenses exceed your rental income, you can subtract that loss from any other sources of income you have. This could reduce your total tax bill.

You will get regular monthly income. Most other investments that offer interest or dividends pay out only once or twice a year. As long as your tenants pay on time, you know exactly what income you will have and when you will receive it.

Property values will likely be more stable than the stock market. With stocks, you can buy and sell shares very easily and quickly. So, share prices can fluctuate very wildly. It is not unusual for the share price of a company to change as much as 5 per cent in just one day.

Property owners, on the other hand, tend to view real estate as a longer term investment. It takes longer to buy and sell. Even when market conditions change, you don’t see the overnight market crashes and massive sell outs that you sometimes see in the stock market.

What are the drawbacks of a rental property investment?

You may have to deal with problem tenants. Working with non-paying tenants can be challenging and stressful if cash flow is tight. Of course, you can try to screen your tenants. But it’s not always easy to tell who may one day fall behind on paying rent, damage property or cause other problems.

It may be hard to sell your property later. Real estate is not a liquid investment. That means it can take time to sell, depending on market conditions. It can also be costly to sell due to real estate and legal fees.
It can be hard to finance your purchase. Under Canada’s new mortgage rules, your down payment must equal at least 20 per cent when you buy a second property. You may also need a mortgage. And, you will have high monthly expenses to cover when you own a building. Of course, you hope the income you receive from your tenants will cover this.

To get approved for a mortgage, your “total debt ratio” must fall within lender limits. At the risk of oversimplifying, your “total debt ratio” is generally your total monthly expenses divided by total monthly income from all sources, including rentals.

That sounds simple, but you need the right advice. A borrower’s ability to qualify often depends on how much of the rental income the lender recognizes.

You’d think that if a tenant pays you $1,000 a month, you could add that $1,000 to your income when qualifying for a mortgage. But in many cases, lenders will credit you with only 50 per cent of the rental income you receive, making it harder for you to qualify.

One last thing to keep in mind about debt ratios. Different lenders have different limits. Some lenders let you have a 42 per cent total debt ratio. Most others permit just 40 per cent. That extra 2 per cent can make a big difference , especially for folks with mortgages on multiple properties.

Being a landlord is not for everyone. Rental units need repair – sometimes on an emergency basis. You might find it difficult to keep up. Or, you simply would not want the hassle of dealing with tenants. ou could hire a property manager. But this will reduce your income from the property.

Remember: Buying a rental property is an investment. It’s vital to do your research before you commit your dollars.

Here are a few things to consider before purchasing a rental property.

1. Do you have enough saved for the down payment?

Under Canada's new mortgage rules, you must come up with a down payment of at least 20 per cent for a small rental property holding from one to four units. This rule does not apply to borrowers whose principal residence also includes rental units. You can purchase a secondary home if it is owner or family occupied with only 5% down. Ask your mortgage professional for details.

2. How much income will the property generate?

You will need to do some research into the neighbourhood. What does rent typically cost, and what is the vacancy rate in that area? Don't assume that you will always have a tenant -- according to the Canada Mortgage and Housing Corporation (CMHC), the average vacancy rate in Canada's 35 major centres is 2.5 per cent. To be safe, assume a four or five per cent vacancy rate into your financial projections, and don't forget to calculate potential costs, such as repairs and maintenance.

3. Can you be a successful landlord?

Being a landlord is a second job. It's not just about finding a tenant and letting the money come in every month. Not only do you have to be available to field emergency calls and keep up with maintenance such as routine fixes, yard work and even shovelling snow, but if you rent to the wrong tenant, you might have even bigger problems to deal with, such as non-payment of rent. Hiring a property manager can help, but that will greatly reduce your monthly profit from the property -- and you never want to be in a negative cash-flow situation.

4. How will deductions affect your profits?

By deducting certain expenses from your income, you can reduce the taxes that you owe. Applicable expenses include mortgage interest, property tax, insurance, property management, maintenance and utility bills. You can also deduct any losses from your rental property. If your expenses exceed your rental income, you can subtract your losses from any other source of income you have coming in.

Purchasing a rental property can be a great way to diversify your investment portfolio, but it is a big commitment. Being a landlord is time-consuming, and not for people who are interested in an easy, passive income stream.

Want to learn more? Check out the Canada Revenue Agency's Rental Income Guide, where you can get more information on deductible expenses, and most other issues regarding rental property.

Sources: Globe and Mail

Updated New Mortgage Lending Rules for 2014

Most recent update to the new lending rules for high ratio mortgages. Some rules are already in effect, however other rules do not start until 2014 such as the heating cost and secured/unsecured credit calculations. These rules will effect how an applicant qualifies for a mortgage that requires mortgage insurance.

Calculation of Debt Service Ratios: Treatment of Key Inputs

Effective July 2012, the Government of Canada fixed the maximum Gross Debt Service and Total Debt Service ratios for insured mortgage loans. This change reinforced the importance of ensuring that debt service ratios provide the same measure of a borrower’s ability to service the mortgage debt, regardless of the lender submitting the application to CMHC for insurance.

CMHC has collaborated with many mortgage lenders to clarify the treatment of key inputs included in the calculation of debt service ratios and minimum documentation requirements for all CMHC-insured homeowner loans. The clarifications include:

Income

Supporting documentation confirming income, employment status and income sustainability are required for all borrowers. Reasonable inquiries should be made and reasonable steps taken to obtain third party verification of the underlying income for all borrowers. This includes substantiation of employment status and income history.

Variable Income:

The variable income level must have been sustained over at least two years and mortgage professionals are to use an amount not exceeding the average income of the past two years. Examples of variable income include bonuses, tips, seasonal employment, investment income, etc.

Where income is increasing year-over-year for four years or more, income for the most recent year may be used. Where income is declining from one year to the next, due diligence is expected to be applied and account for the downward trend.

Self-employed Income (without traditional documentation to support income verification)

Borrowers who have recently become self-employed or operate a new business may have difficulty providing traditional forms of documentation to support income. Reasonable steps are expected to be taken to obtain standard documentation to support gross annual income. Where traditional income documentation is not available, a reasonable effort must be made to assess the plausibility of the income, including consideration of the nature of the self-employment, reported by the borrower before submitting the application to CMHC. Relying solely on borrower disclosure is not acceptable.

Rental Income

Where gross annual income includes rental income from a property that is: not owner-occupied; and not the subject of the current insurance application, the principal, interest, property taxes and heat (P.I.T.H.) of the rental property expenses must either be:

• deducted from gross rent revenue when establishing net rental income; or
• included in “other debt obligations” when the Total Debt Service (TDS) ratio is being calculated.

Guarantor Income

Guarantors'/covenantors' income must not be used for the purpose of satisfying CMHC's borrower qualification criteria unless the guarantor/covenantor occupies the home and is the spouse or common-law partner of the borrower.

Debt

Unsecured Lines of Credit and Credit Cards

For unsecured lines of credit and credit cards, an amount corresponding to no less than 3% of the outstanding balance is to be factored in. In determining the amount of revolving credit that should be accounted for, reasonable inquiry is expected to be made into the background, credit history and borrowing behaviour of the prospective borrower. 

Secured Lines of Credit

For secured lines of credit, an amount corresponding to at least a monthly payment on the outstanding balance amortized over 25 years using the contract rate or the 5-year Benchmark rate (V121764) published by Bank of Canada (if contract rate is unknown), is to be factored in. Approved lenders may elect to apply internal guidelines where the result is at least equivalent to the above.

Heating Costs

Reasonable effort is expected to be made to obtain actual heating cost records for the subject property. Where there is no history of heating cost available for the subject property, the heat expense used for calculating debt service ratios must be a reasonable estimate taking into consideration factors such as property size, location and/or type of heating system.

As per CMHC’s current expectations with regards to approved lenders’ responsibilities, approved lenders may continue to impose underwriting policies that are more stringent than prescribed by CMHC and, subject to reasonableness and prudency, observe their own conventional lending practices in the absence of CMHC policies on a specific issue.

To allow adequate time for the industry to apply the approach, the clarifications will become effective on December 31, 2013.

Source: CMHC

Purchase Plus Improvement Mortgage

Is the home you are going to purchase need some renovations? A purchase plus improvement mortgage helps home buyers pay for their renovations, with one manageable mortgage, and as little as 5% down!

Purchase Plus Improvements is for consumers looking to purchase a home that has great potential but needs a little TLC. This program allows you to make improvements immediately after taking possession of your new home and have the costs rolled into one easy-to-manage mortgage.

The purchase plus improvements mortgage is a very helpful mortgage program for many. It is specially valuable when you find the perfect neighborhood, location, home structure, and price only to be disappointed when they walk in and find pink shag carpet and 30 year old built in appliances.

Purchase Plus Improvement Defined
When a client is purchasing a home and wants to add cosmetic changes through a renovation process using funds advanced by the lender to complete and pay for the renovations.

The Steps to a successful Purchase Plus Improvements Mortgage:

Once the purchase contract is in place, you need to obtain quote(s) on the work to be completed. The quote(s) should be obtained from a reputable contractor or well known company and should be written professionally on letterhead including labor and material costs in an itemized fashion making review simpler.

Once your mortgage is approved and all conditions are met, the lender will advance the entire mortgage amount to the lawyer and condition for the lawyer to hold back the amount equivalent to the renovation cost.

For example:
You purchases a new home for $300 000 with 5% down payment and adds $15 000 in improvements.  The new purchase effectively becomes $315 000 and a 5% down payment on this amount is now required.  The lawyer will receive funds in the amount of 95% of $315 000 and will pay the seller the $300 000 owing and then proceed to hold back the remainder of the funds until the improvements are complete.  Once the improvements are finished and inspected, the improvement funds are released. It is very important to remember that the improvement funds are not released until 100% of the improvements are complete.

Dispelling the biggest question with purchase plus improvements mortgages
The lender will not pay for your improvements up front, rather you will be reimbursed once they are fully complete to the lender’s satisfaction.

Frequently Asked Questions

Q: What is the maximum amount of improvements you can obtain?

A: The maximum amount of improvements allowed are equal to 10% of the purchase price. For Example, if the purchase price is $300,000, the maximum improvements allowed are equal to $30,000 or 10%. If you require more you will require a construction mortgage.

Q: What are cosmetic renovations?

A: Cosmetic renovations are usually smaller adjustments/renovations to the home’s interior or exterior appearance. Examples would include: New Carpets, New Kitchen Cabinets, New Paint, New bathroom fixtures, etc.

An example of a larger but acceptable improvement would be: The addition of a detached Garage, or full basement development. These items are designed to add value to the home and not to correct deficiencies or structural concerns.

Q: What if you want to do the work yourself?

A: Lenders will only compensate for material costs used to complete the improvements. For Example: A client  is very handy and has a background or trade that would allow them to competently complete a small upgrade or renovation on their own, the lender will not compensate for their labor, rather just the materials.  In this case we would ask for a professionally completed and itemized material quote from a hardware depot/store.

Q: Can you use this program to purchase new appliances?

A: That is a great question, in my opinion it should be yes.  However chattel items such as Fridges, Stoves, Microwaves, Dishwashers, etc. cannot be included in this program. These items can be removed from the home upon sale and we cannot include them to directly impact a property’s value.

Link to CMHC Purchase Plus Improvement Program

Source: Mortgage Showdown

Is Your Mortgage Up For Renewal?

With every mortgage renewal comes the opportunity to reflect and assess your mortgage needs before you decide on a new mortgage product. Whether your term is 6 months or 10 years, your mortgage lender will mail your mortgage renewal agreement 30-60 days prior to maturity. Most mortgage renewal agreements are at posted rates. I recommend that your speak with your mortgage professional prior to signing your mortgage renewal, chances are you will get a better mortgage offer than what is offered on the renewal.

You do not have to renew your mortgage with the same lender. You can choose to move your mortgage to another lender if it offers you terms and conditions that suit your needs better. When you refinance your mortgage with a new mortgage lender, the new lender will process the mortgage application as if you are applying for a new mortgage.

If you decide to switch your mortgage to another lender, make sure you verify the costs of changing lenders, such as legal fees to register the new mortgage, fees to discharge the previous mortgage and other administration fees. You can ask if your new mortgage lender will pay for part or all of these fees.

The great news is that upon your renewal date (maturity) you can switch your mortgage to another lender without paying a penalty. This is a great opportunity to discuss your mortgage strategy with your mortgage professional without incurring a penalty if there is another lender that meets your needs or offers a superior mortgage product.

Follow these simple steps to make sure you secure the mortgage renewal that’s right for you:

1. Start early. Did you know that most mortgages can renew as early as 120 days in advance? This option allows you to lock your mortgage in at current rates and renew early without paying a prepayment charge.
2. Consult your mortgage professional. They’ll make sure you have the latest product and mortgage information to help you make a final decision.
3. Renew at maturity. Many people wait for their mortgage to reach maturity before thinking about their mortgage renewal. If this is the case for you, some banks and lenders will offer you the lowest posted rate within the last 30 days of your mortgage term if you choose a fixed rate mortgage. This way if rates increase you are protected during the mortgage renewal process.
   
   
   
   
   
   
   
   
   
   

Bank Mortgage Advisor's Vs. Mortgage Brokers?

When looking for solid trust worthy mortgage advice who do you turn to? Mortgage brokers or bank mortgage advisor'?

Bank Mortgage Advisor

A mortgage advisor at a bank is very much like a mortgage broker in terms of service, availability, flexibility and knowledge, except they work for their respective bank only.  A mortgage advisor will meet with you and work with you just like a mortgage broker to see what your best mortgage strategy and options will be in terms of getting a mortgage.  They can negotiate with the bank on your behalf to get the best deal on a mortgage.  They get paid by the bank, either through commissions, or salary + commission, or just salary.

Mortgage Broker

A mortgage broker is a professional who is a freelancing agent.  They go between the lenders and the borrowers (you) and are paid a commission from the lenders for securing a good borrower.  They don’t work for any one financial institution.  They work for themselves or a team, and have contacts to lots of lenders.  They seek out clients interested in borrowing for or against a home and connect them with a lender that will work for them.  Some can even go between you and the banks for a mortgage. Many people say their mortgage broker can get a better rate than if they went to the banks themselves.  Some people also say that a mortgage broker helped them get approved even though their credit history was poor.

So who to choose? Let’s look at the pros and cons of each.

Bank Mortgage Advisor Pros

• Flexibility: You can see them on your time when and where you want.
• They can offer bank perks such as: discount banking fees, lower interest lending products etc.
• They often pay the appraisal fee.
• Face to face personal meetings.
• Security: Banks likely will not close down.
• Service:  Larger network of support services, there is always someone to talk to at your local bank if you have any questions or concern.

Bank Mortgage Advisor Cons

• You have to do the shopping of different lenders.
• Posted rates are often not as low as mortgage broker posted rates.
• If your credit history is poor, banks may not approve you.

Mortgage Broker Pros:

• Flexibility: You can see them on your time when and where you want.
• You often get a very competitive rate.
• They may be able to get you approved with more than one lender.
• If your credit score is poor or bruised, they may find a lender who will work with you.
• You don’t have to negotiate, they will do the negotiating for you.

Mortgage Broker Cons

• The lenders that offer the lowest rates are often located in different provinces with no local branch service.
• The lenders that offer lower rates are often smaller, unknown companies.
• Some lenders pay higher commissions to brokers than other lenders, a broker may place your mortgage with a higher risk lender because of a higher paid commission.
• Additional mortgage broker fees depending on the type of mortgage needed.
• If you have an issue with your broker you have to deal with the broker, there is typically no "higher authority" to make a complaint to.

After reviewing the pros and cons of each it's ultimately your decision and comfort level on who you would like to work with. If you have a good credit history, then shop around at the banks to see what is offered to you. Each bank mortgage advisor is different but most will provide the best rates and solution for you the first time. If your credit history isn’t the best, then going through a mortgage broker might be the best option for you as you have a greater chance of finding a lender.

Take the time to do your research in finding the right advice because it is the biggest financial decision you will make in your life!

Success

"What's your best rate?"

"What's your best mortgage rate?" This is the million dollar question... or is it? I am asked this everyday, my response is "What is your mortgage strategy?" Most people are thrown off by this response as they do not have a mortgage strategy. The truth of the matter is that there are so many different mortgage rates and products that without developing an in depth personal mortgage strategy we really don't know what the best rate is for you and your mortgage plan.

Are you purchasing your first home?

Are you refinancing an existing home? Are you going to sell this home within the next 3-5 years?

Are you renovating your home?

Are you consolidating debt?

Do you own an investment property?

Do you need cash back?

Tailoring a mortgage to a client's needs is something many mortgage professionals do not do enough of. As a Mortgage Advisor it is my commitment to discuss all your mortgage options, and answer all your questions and concerns.

The lowest rate says nothing about the quality of the mortgages and the service provided, your ability to qualify or the support you can expect with a given rate. Keep in mind, most deeply discounted rates come with little service or mortgage planning. If you want someone who takes time to carefully review your best alternatives and warn you of lender restrictions, and be available for your mortgage needs before, during and after the mortgage process it is rational to pay 5-10 basis points extra for that service (2.99% instead of 2.89% for example). That difference is minimal when you need the right advice, because bad mortgage selection will balloon your cost of borrowing after closing.

Get Pre-Approved Today

Considering buying a house? Perhaps you want to upgrade to a new larger home. Ever think about a second home, cottage or investment property? Your first step is getting pre-approved to find out what you can afford.

If you’re thinking about buying your first house, one of the first questions you may ask yourself is, “How much can I afford?” Read the following mortgage affordability tips before you set out to find the home of your dreams:

Consider your annual household income. This is a key factor when determining how much of a mortgage you can afford. In addition to calculating your annual household income, consider any income changes that may impact your ability to make your payments. For example, if there are currently two major income sources within your household, would you still be able to afford your mortgage if one was removed? What if a child comes into the picture and your partner decides to become a stay-at-home parent? Consider all factors before deciding.

Consider your down payment. Currently, you are required to have at least a 5% down payment when buying a house. The size of your down payment is one factor in determining the size of mortgage you can afford.

Consider your debt. When determining “How much can I afford?” one of the other important factors to take into account is the amount of debt you currently have. The lower your debt-to-income ratio, the more money you’ll likely have to put towards your mortgage. In addition, your debt level will also help to determine how large of a mortgage you will qualify for.

Consider your amortization period. If you are simply trying to keep your regular mortgage payments low in order to comfortably fit the payment into your budget, you will probably want to apply for a mortgage with a longer amortization period. However, if you don’t mind a somewhat larger regular mortgage payment in order to save money on interest in the long run, you may want to consider a shorter amortization period.

Consider your closing costs. Closing costs are an often overlooked expense that will definitely help determine how much money you can afford as a down payment.

Consider your property taxes, various types of homeowner’s insurance such as damage, title etc and additional expenses. Lastly, there are a few additional expenses that may impact how much money you have to put towards your mortgage each month. Expenses like property taxes, homeowner’s insurance and even things like home maintenance should be factored in before making your final decision. These costs are often overlooked but should be considered before settling on the home of your dreams.

An experienced mortgage professional helps you answer the question “How much can I afford?”
Buying a home is a big financial decision. When you start out by knowing what mortgage you can comfortably afford and what houses fit into your price range, you will be prepared to find the ideal house for
 your situation.

Get pre-approved today 1-866-890-9066

Service vs. Rate

Canadians today are savvy and educated when it comes to shopping for mortgage financing. Healthy competition is good for any industry and great for Canadians as a whole because it gives us multiple options to choose from. But how do you decide which financial institution to finance your mortgage with?

Most banks, brokers and mortgage lenders offer similar rates and products that range from 10+ basis points (0.10%.) For example as of the writing of this post, a 5 year fixed rate mortgage ranges from 3.29%-2.99%. You may may shop around to different lenders until you find the lowest rate, but a word of caution, make sure you are getting the right advice and service from your mortgage professional.

Ask your mortgage professional the following questions;

What are my pre-payment options?
Ensure that you are being informed on your pre-payment costs. A lower rate or discount mortgage may be great but you also may have very limited pre-payment options, or the mortgage can be locked for the full term meaning it cannot be paid out.

How are penalties calculated and applied?
Make sure that your aware of any penalties by paying the mortgage off early. Is the penalty 3 months of interest. Interest rate differential? Can the mortgage be paid out mid term or only from a bona fide sale?

Can I port or transfer my mortgage?
Ensure that you know if you can port your mortgage to another property without being charged a penalty during the term of the mortgage.

Is my mortgage standard charge or collateral?
Get clarification if the mortgage charge is standard or collateral. See my post on collateral vs. standard charge mortgages.
http://drmortgages.blogspot.ca/2013/02/collateral-vsstandard-charge-mortgages.html

Does my mortgage lender have a local branch?
This in my professional opinion is one of the most important factors when deciding where to place your mortgage. A lot of mortgage brokers will place your mortgage with a lender that may be located in another province altogether. This means the only way you can get assistance and proper service is via phone or email. It can be very frustrating if you have an issue, problem or concern with your mortgage and the only means of contact to get resolution is by phone or email. However if your lender has a physical branch located in your community, it's much easier to walk into the branch and get  direct personal service, and you are more likely to get your concern addressed and resolved immediately.

To put this into perspective take for example a $200,000 mortgage amortized over 25 years at a 5 year rate of 3.09% and 2.99%. The difference in the monthly payment is $10.28 or thirty four cents a day. Would you pay thirty four cents a day for the peace of mind, knowing that if you have a concern you can have it addressed right away by your local branch personally and not have the headache of problem resolution over the phone?

I have new clients come to me constantly who want to switch their mortgage for this reason and this reason only. They have stated that they would gladly pay a slightly higher rate to get the better service of a local branch presence.

Collateral vs.Standard Charge Mortgages

More lenders are moving to collateral charge mortgages so it’s becoming increasingly important to understand the differences between a collateral and standard charge mortgage. TD Bank announced in October, 2010 that all new mortgages will be a collateral charge mortgage. ING made the same announcement at the end of 2011 and it is expected that other lenders may follow.  Collateral charge mortgages are now the only option with TD and ING.  Standard charge mortgages are offered by the majority of all other lenders, although some offer both – standard charge mortgages and HELOCs, which are a collateral charge. You choose the option that best meets your needs.  So what’s the difference, and which is better for you?. It’s important to understand those differences so you can make sure you get the mortgage that best fits your long-term goals.

They both have advantages and disadvantages; the one that is right for you depends on your preferences, future needs, and long-term goals. The primary difference is that a collateral charge mortgage registers the mortgage for up to 125% (TD) or 100% (ING) of the value of the home at closing, instead of the amount you need to close your transaction.  The advantage behind this is that it makes it easier to tap into your equity for debt consolidation, renovations or to invest in property or investments easily and cost effectively, since you don’t need to visit a lawyer and pay legal fees. This flexibility is one of the primary advantages of collateral charge mortgages.

The downside comes at renewal. For consumers who want to keep their options open at maturity and have negotiating power with their lender, this isn’t the best product feature because collateral charge mortgages are difficult to transfer to another lender. That means if someone wants to change lenders for a better rate or product feature, they need to start from the beginning and pay new legal fees, which range from $500 to $1,000. Technically they can be assigned but lenders don’t accept the transfer. With regular standard charge mortgages, you can switch for free, although certain minor charges may apply. In addition, with a collateral charge, it could be difficult to get a second mortgage unless your home significantly appreciates in value.

The ability to take out equity is one of the primary features of Home Equity Lines of Credit, which are collateral charges for this reason. In these cases, clients want the ability to extract equity when they need it or as it becomes available. If you feel that there is a very good chance you will refinance to consolidate debt or to extract equity for a renovation or to invest, then a collateral charge mortgage may be a wise decision.

If you don’t believe that you’ll need to refinance or extract equity, then a regular standard charge mortgage will suit you fine, and it will give you the ability to move to another lender at renewal should you want to without incurring legal fees. In other words, it’s easier for you to keep your options open. If need to borrow more with a standard charge mortgage, you have the option of a second mortgage or line of credit.

Determining whether to get a standard or collateral charge mortgage adds another layer of complication for many homebuyers and owners. Obtaining the proper advice from a mortgage professional is your best choice to navigate this complex subject.

Source: Mortgage Superhero

Mortgage & Retirement

Having a mortgage during retirement adds a hefty bill to a post-employment lifestyle. As a result, many people seek to pay off their mortgages entirely prior to retiring. Here are three questions to ask yourself when determining whether paying off your mortgage early is a good strategy for you.

What are the Rates of Return?

One way to evaluate the decision to pay off your mortgage versus keeping more of your money in savings is by comparing the rates of return you expect to earn by following each path. Should you choose to pay off your mortgage, your rate or return is certain; you "earn" the interest rate charged on your mortgage.

If you instead choose to save the money, your rate of return may vary considerably. Your expectation will be determined by how you choose to invest. If you choose to invest very safely, like in a savings account, your rate of return will be quite low, likely below that of your mortgage. If you choose to invest more aggressively, you may very well earn a higher return, but will do so at a cost of significantly more risk and greater uncertainty.

What About the Home Mortgage Interest Deduction?

With every home payment you make, you might benefit from a mortgage interest deduction. However, the benefit of the home mortgage interest deduction may be less than you think, since:

• Your tax rate may be lower than ever - Since you’re in retirement, you’re not working, lowering your income, and lowering your income tax rate.
• Your payment consists of more principal and less interest.
• Each successive mortgage payment is comprised more of principal and less of interest, reducing the size of your deduction on your tax return.
• Your other itemized deductions are probably lower too.
• Because you’re in retirement, you’re probably paying less state income tax. Since you only receive a tax benefit to the extent your itemized deduction exceeds your standard deduction, this means you get less of a tax break from your home mortgage payments.

Would You Prefer No Bill or No Cushion?

While it may be of comfort to avoid a mortgage bill every month, you don’t want to pay off your entire mortgage if doing so would leave your without any savings cushion. You’ll never want to pay down your mortgage only to find that you can’t afford to pay for an unexpected car or home repair without going into credit card debt. Ideally, you could pay off your mortgage and have significant savings remaining. Regardless, make sure you retain an emergency fund in retirement.

4 reasons to pay off your mortgage before you retire

Does your mortgage term extend past the date you want to stop working? You might want to reorganize your finances and pay it off sooner. Here's why.

With housing prices skyrocketing and 30-year mortgages available to homeowners, more and more Canadians will be paying off their home well into retirement. If you’re still making a decent living in your 60s and 70s, then that may not be a problem. But for people who actually want to retire, having a hefty monthly payment to take care of can be trouble.

Ideally, you want your mortgage paid off by the time you leave the workforce. Here’s why.

1. Mortgage payments are large - As housing prices go up, so do monthly mortgage payments. Just imagine how much money you’d have if you didn’t have to pay a mortgage. Now imagine paying that monthly amount and not making any income. Scary, right? You don’t want to have to worry about finding a few thousand bucks a month to pay for your house when you’re not bringing in a paycheque.

2. RRSP withdrawals aren’t the answer - You’re probably thinking you can withdraw money from your RRSP to make those payments. Well, besides the fact that the point of saving all that money during your career was so you could enjoy retirement, in order to pay the mortgage you’ll actually need to take out more money than you might think.

When RRSP savings are withdrawn, you have to pay tax. It’s the after-tax dollars that will be used to pay down your debt. Theoretically, you could have to remove $3,000 to make a $2,000 payment.

3. You know what you’re getting into - There’s always a debate around paying off a mortgage versus investing in an RRSP. A lot of experts recommend concentrating on the mortgage first because it’s easy to see what’s happening. You have a set rate and you can see the balance dropping. With investing, the rate of return is unpredictable. Aggressively pay down the mortgage first and then use all that extra cash for retirement savings.

4. You’re building equity -  Not only does a mortgage-free retirement give you a lot of extra money to spend in your golden years, but if you need cash to fund something -- maybe a major medical issue, or you want to buy a small condo -- you can sell the house. If the mortgage is paid off you’ll get all the proceeds from the sale.

Retiring mortgage free doesn’t always make sense -- having a large pension, if you're so lucky, could make those payments manageable -- but generally, it’s better not to have such a huge debt when you stop working.

 

 

Source:  Rob Carrick