Unimor Capital Corporation

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  • A Complete Guide to Buying Your First Home

    A Complete Guide to Buying Your First Home

    Buying your first home is an exciting and a significant milestone in your life. If you’re considering purchasing a home, you’re in for a unique and rewarding experience. Ontario offers a diverse range of housing options, from bustling city condos to peaceful suburban homes, making it an attractive destination for first-time homebuyers. However, the process of buying a home can be complex and overwhelming, especially if you’re new to the real estate market. In this comprehensive guide, we will walk you through the complete process of buying your first home, from setting your budget to closing the deal.

    STEP 1: Assess Your Finances
    Before you start looking at properties, it’s crucial to evaluate your financial health. Review your income, savings, debts, and credit score. Your credit score is particularly important because it will affect the mortgage terms a lender will offer you. It’s also the right time to start saving for a down payment if you haven’t already.

    STEP 2: Establish Your Budget
    Next, you’ll want to establish a realistic budget. Before you start looking at homes, you need to determine how much you can afford. To do this, consider the following factors:

    • Down Payment: In Ontario, a minimum down payment is required, which varies based on the purchase price of the home. For homes priced up to $500,000, the minimum down payment is 5% of the purchase price. For homes priced between $500,000 and $1 million, you need to put down 5% on the first $500,000 and 10% on the remaining amount. Homes priced over $1 million require a 20% down payment.
    • Additional Costs: In addition to the down payment, you’ll need to budget for closing costs, which can include legal fees, land transfer tax (unless you’re a first time homebuyer), home inspection fees, and more. These costs can add up, so it’s essential to factor them into your budget.
    • Monthly Expenses: Consider your current monthly expenses, such as rent, utilities, and insurance. Your new home may have different monthly costs, such as mortgage payments, property taxes, and maintenance. Ensure that you can comfortably manage these new expenses within your budget.

    STEP 3: Obtain Mortgage Pre-Approval
    Once you have a clear budget in mind, it’s time to obtain mortgage pre-approval. This step involves working with an experienced Mortgage Broker, to determine how much you can borrow and at what interest rate. A mortgage pre-approval provides you with a clear understanding of your purchasing power and can help streamline the home-buying process. To get pre-approved for a mortgage:

    • Gather Financial Documentation: Be prepared to provide your financial information, including proof of income, employment history, and details about your assets and liabilities.
    • Complete an Application: Make sure the information you give is accurate and complete, this will ensure a smooth application process.
    • Choose a Mortgage Type: There are various mortgage types available, including fixed-rate mortgages, variable-rate mortgages, and hybrid mortgages. Consult with your Mortgage Broker to determine which type is best for your financial situation.

    STEP 4: Start Your Home Search
    With your budget and pre-approval in hand, it’s time to begin your home search. Ontario offers a wide range of housing options, from single-family homes to condos and townhouses. Consider your lifestyle, preferences, and future needs when searching for the right property. Here are some tips for finding your ideal home:

    • Hire a Realtor: Working with a qualified real estate agent can make the home-buying process more manageable. Realtors have local knowledge, access to property listings, and negotiation skills that can be invaluable.
    • Create a Wish List: Make a list of must-have features and preferences for your future home, such as the number of bedrooms, location, proximity to schools or public transportation, and any specific amenities you desire.
    • Research the Neighborhood: Explore the neighborhoods you’re interested in to ensure they meet your needs. Consider factors like safety, local amenities, schools, and commute times to work.
    • Attend Open Houses: Visit open houses and schedule private viewings to get a feel for different properties. Pay attention to the condition of the home, the neighborhood, and any potential issues.

    STEP 5: Make an Offer
    Once you’ve found the perfect home, it’s time to make an offer. Your real estate agent will help you prepare a written offer that outlines the purchase price, any conditions, and the closing date. In Ontario, it’s common to include conditions such as a home inspection and financing approval. The seller can either accept, reject, or counter your offer. Here are some key points to keep in mind during this process:

    • Negotiate Wisely: Be prepared to negotiate with the seller to reach a mutually agreeable price. Your real estate agent can provide guidance on the negotiation process.
    • Include Contingencies: Including contingencies in your offer, such as a financing condition, can protect you in case unexpected issues arise.
    • Deposit: When your offer is accepted, you will need to provide a deposit, typically held in trust by the seller’s brokerage. This shows your commitment to the purchase.
    • Home Inspection: Consider arranging a professional home inspection to identify any potential issues with the property. You can use the inspection report to negotiate repairs or a reduction in the purchase price if needed.

    STEP 6: Secure Financing
    With an accepted offer in hand, it’s time to finalize your financing. This involves working closely with your Mortgage Broker to complete the application process. Be prepared to provide updated financial documents, and ensure that all conditions in your offer, such as financing approval, are met. Your Mortgage Broker will then arrange for a property appraisal to determine the home’s value.

    STEP 7: The Legal Process
    The legal process of buying a home involves several important steps:

    • Hire a Real Estate Lawyer: You’ll need to hire a real estate lawyer to handle the legal aspects of your home purchase. They will review the purchase agreement, conduct a title search, and ensure that the property has no outstanding liens or issues.
    • Land Transfer Tax: In Ontario, you’ll need to pay a land transfer tax when you buy a property. The amount depends on the purchase price and other factors. First-time homebuyers may be eligible for a rebate.
    • Closing Costs: Your lawyer will provide you with a statement of adjustments that outlines the closing costs you need to cover. These costs may include property taxes, utility bills, and legal fees.
    • Property Insurance: You will need to arrange for property insurance to be in place at the time of closing.

    STEP 8: Finalize the Deal
    As the closing date approaches, you and your lawyer will work together to ensure all necessary paperwork is in order. This includes signing the final documents, transferring funds to cover the purchase price, and closing costs, and conducting a final walkthrough of the property to ensure it’s in the agreed-upon condition.

    STEP 9: Closing Day
    Closing day is the culmination of the home-buying process. On this day:

    • The seller’s lawyer transfers the property’s title to your name, and your lender provides the funds for the purchase.
    • You’ll receive the keys to your new home, and the property officially becomes yours.
    • Your lawyer will register the transfer of the property and pay any outstanding fees, including land transfer tax, if applicable.
    • Your lender will set up your mortgage payments as per your agreement.

    STEP 10: Move In & Settle In
    Congratulations, you’re now a homeowner! After closing day, it’s time to move into your new home and settle in. Here are some essential steps to consider:

    • Utilities: Ensure that you transfer or set up utilities such as electricity, water, gas, and internet in your name.
    • Change of Address: Update your address with important institutions such as your bank, employer, and any government agencies.
    • Home Maintenance: Begin regular maintenance tasks to keep your home in good condition.
    • Enjoy Your New Home: Take the time to explore your neighborhood and make your new house feel like home.

    Buying your first home is an exciting and rewarding journey. By following the steps outlined in this comprehensive guide, you can navigate the process with confidence. Remember to establish a realistic budget, obtain mortgage pre-approval, work with a real estate agent, and conduct thorough research to find the right property for you. With careful planning and the support of professionals, you’ll soon be enjoying the benefits of homeownership in this beautiful province.

  • The Mortgage Renewal Process

    The Mortgage Renewal Process

    If you’re a homeowner, your mortgage is likely one of the most significant financial commitments you’ll ever make. The mortgage renewal process is a critical milestone that deserves careful consideration. This article will guide you through the steps you should take when renewing your mortgage, helping you make informed decisions that align with your financial goals.

    Understanding Mortgage Renewal
    Mortgage renewal is the process of renegotiating the terms of your existing mortgage agreement once your current term expires. In Ontario, mortgage terms typically last anywhere from one to five years. When your term is up, you have the option to renew your mortgage with your current lender or explore other options in the market.

    Renewal is an excellent opportunity to reassess your financial situation, review your mortgage terms, and potentially take advantage of better interest rates or terms. It’s not an automatic process; you need to be proactive and take the necessary steps to secure a favorable renewal.

    Why Mortgage Renewal Matter
    Mortgage renewal can significantly impact your financial well-being. Here are a few reasons why it’s crucial to approach it with care:

    • Financial Stability: Your mortgage is likely your most substantial financial obligation. Renewing at a higher interest rate or unfavorable terms could strain your budget and affect your overall financial stability.
    • Savings Opportunity: A lower interest rate can lead to substantial savings over the life of your mortgage. Mortgage rates can fluctuate, so renewing at the right time can save you thousands of dollars.
    • Customization: Renewal allows you to customize your mortgage to better fit your current financial situation and goals. You can choose a different term, payment frequency, or even make additional lump-sum payments.
    • Switching Lenders: You’re not obligated to renew with your current lender. Exploring other lenders may result in more competitive rates and terms, potentially benefiting your financial situation.

    Steps to Take When Renewing Your Mortgage
    Now that you understand the importance of mortgage renewal, let’s delve into the steps you should take to ensure a smooth and beneficial process:

    1. Start Early
    Don’t wait until the last minute to initiate the renewal process. Start at least four to six months before your current mortgage term expires. This gives you ample time to evaluate your options, research rates, and make informed decisions.

    2. Review Your Current Mortgage
    Begin by thoroughly reviewing your current mortgage agreement. Take note of your interest rate, remaining balance, term length, and any specific terms or conditions. Understanding your existing mortgage terms is essential for making informed decisions during renewal.

    3. Assess Your Financial Situation
    Evaluate your financial goals, income, and expenses. Determine whether your circumstances have changed since you first obtained your mortgage. Consider factors like job stability, family size, and other financial commitments. This assessment will help you determine the type of mortgage that best suits your needs.

    4. Shop Around for Rates
    One of the most crucial steps in the mortgage renewal process is shopping around for competitive rates. Contact multiple lenders, including your current one, to inquire about their renewal offers. Compare interest rates, terms, and any additional benefits or incentives.

    5. Negotiate with Your Current Lender
    Once you’ve gathered renewal offers from different lenders, don’t hesitate to negotiate with your current lender. They may be willing to match or beat the offers you’ve received from other institutions to retain your business. Negotiation can potentially lead to more favorable terms and conditions.

    6. Consider Your Mortgage Term
    Choose a mortgage term that aligns with your financial goals. Shorter terms typically come with lower interest rates but higher monthly payments, while longer terms offer stability with fixed monthly payments but slightly higher interest rates. Consider whether you want a fixed or variable rate mortgage based on your risk tolerance.

    7. Think About Payment Frequency
    Select a payment frequency that suits your budget and financial habits. Options typically include monthly, bi-weekly, or weekly payments. Making more frequent payments can help you pay off your mortgage faster and save on interest.

    8. Review Additional Features
    Pay attention to any additional features offered with your mortgage, such as the ability to make lump-sum payments or increase your regular payments. These features can help you pay down your mortgage more quickly and save on interest costs.

    9. Seek Professional Advice
    Consider consulting a Mortgage Broker for guidance. They can help you navigate the renewal process, provide expert advice on your financial situation, and connect you with lenders offering the best terms to suit your needs.

    10. Lock in Your Rate
    Once you’ve chosen a lender and agreed on the terms, it’s essential to lock in your interest rate. Interest rates can fluctuate, so securing your rate ensures you won’t be affected by any potential increases before your renewal date.

    11. Complete the Renewal Process
    After finalizing your mortgage renewal agreement, your lender will provide you with the necessary documents to complete the process. Review these documents carefully and seek legal advice if needed. Once everything is in order, sign the renewal documents to formalize the agreement.

    Mortgage renewal in Ontario is a crucial financial decision that can significantly impact your long-term financial health. By following these steps and taking a proactive approach, you can make informed choices that align with your financial goals. Remember to start early, assess your financial situation, shop around for rates, and negotiate with your current lender to secure the best possible mortgage terms. With careful planning, you can ensure that your mortgage renewal process leads to a more secure financial future.

     

  • Assessing the Impact of Mortgage Down Payments

    Assessing the Impact of Mortgage Down Payments

    Embarking on the journey of homeownership involves multiple financial components, among which the down payment and mortgage hold a paramount position. A down payment refers to the initial upfront amount paid during the property purchase, and the mortgage represents the loan obtained to cover the remaining property value. Analyzing the mutual impact of these elements is crucial to ensure informed, strategic, and sustainable financial decisions in the vibrant Ontario real estate market.

    Down Payment & Mortgage: A Symbiotic Relationship
    The down payment and mortgage have a reciprocal relationship, influencing each other and affecting your financial dynamics during homeownership. A higher down payment usually results in a lower mortgage and, consequently, less financial strain over the years. It’s the first step in determining the affordability, loan structure, interest rates, and repayment terms of your mortgage.

    Implications of Elevated Down Payments

    1. Reduced Loan Amounts: A higher down payment implies a lower loan amount, ensuring reduced interest expenditures and manageable monthly payments. This is pivotal in fostering financial stability and accommodating other financial obligations.
    2. Favorable Interest Rates: With a significant down payment, lenders often offer lower interest rates, as it mitigates their risk by reducing the loan-to-value ratio.
    3. Absence of Mortgage Insurance: By making a down payment of 20% or above, Ontario homebuyers can often avoid the additional cost of mortgage default insurance, relieving them from the extra financial burden.
    4. Swift Equity Accumulation: Elevated down payments allow homeowners to gain immediate substantial equity in the property, offering a safety net against market volatility.
    5. Enhanced Market Position: In competitive markets like Ontario, a considerable down payment can make offers more appealing to sellers due to perceived financial reliability.

    Consequences of Minimal Down Payments

    1. Higher Loan Amounts: Lesser down payments lead to an increased mortgage, culminating in more substantial interest payments and potential financial stress over the loan’s lifespan.
    2. Elevated Interest Rates: A smaller down payment usually translates to higher interest rates, as lenders might perceive it as an increased risk.
    3. Mandatory Mortgage Insurance: In Ontario, down payments below 20% generally require mortgage default insurance, which can significantly extend the overall loan cost.
    4. Slower Equity Growth: Lower initial investment results in slower equity accumulation, leaving homeowners more susceptible to market downturns.

    Ontario’s Market Specifics
    Ontario’s diverse and dynamic real estate market also brings specific considerations regarding down payments and mortgages. The Mortgage Stress Test, a standard in Ontario, assesses whether borrowers can afford their mortgage payments at higher interest rates, emphasizing the importance of sensible down payments.

    Crunching the Numbers
    Understanding the numerical correlation between down payment and monthly payments is crucial. For example, on a $500,000 home, a 10% down payment would require a mortgage of $450,000, whereas a 20% down payment would reduce the mortgage to $400,000. This difference in mortgage amount can have a considerable impact on the total interest paid over the life of the loan, monthly payments, and the loan’s duration.

    Striking the Right Balance
    Choosing the right down payment is akin to walking a tightrope. While a smaller down payment seems appealing due to immediate financial ease, the resultant long-term implications warrant careful consideration. It’s imperative to allocate a down payment that doesn’t deplete all savings but is substantial enough to mitigate long-term financial implications.

    Making Informed Decisions
    In the evolving real estate terrain of Ontario, prospective homebuyers should assess their financial standing, loan options, and market conditions before determining the down payment. Employing mortgage calculators, seeking advice from mortgage advisors, and understanding loan structures can aid in making informed decisions that align with financial goals and market realities.

    In conclusion, understanding the impact of down payments on mortgages is pivotal for anyone looking to purchase a home. The down payment is not just a financial prerequisite; it’s a strategic tool that influences your mortgage and overall home ownership journey. Whether you are a first-time buyer or a seasoned investor, aligning your down payment with your financial capacity and homeownership goals can significantly enhance your experience in Ontario’s dynamic housing market. By making informed and balanced decisions, you can navigate the complexities of the real estate world and pave the way for a stable and fulfilling homeownership journey.

  • Understanding LTV: How it Impacts Your Mortgage Eligibility

    Understanding LTV: How it Impacts Your Mortgage Eligibility

    When it comes to obtaining a mortgage, understanding the concept of Loan-to-Value (LTV) ratio is essential. The Loan-to-Value ratio is a financial metric that plays a significant role in determining your eligibility for a mortgage. This article aims to shed light on what Loan-to-Value is and how it affects your ability to secure a mortgage.

    What is Loan-to-Value Ratio?
    Loan-to-Value ratio, often referred to as LTV ratio, is a key measure used by lenders to assess the risk associated with a mortgage loan. It represents the proportion of the loan amount in relation to the appraised value or the purchase price of the property (whichever is lower). The LTV ratio is expressed as a percentage and serves as an indicator of the borrower’s equity in the property.

    Understanding the Calculation
    To calculate the Loan-to-Value ratio, you divide the loan amount by the appraised value or the purchase price (whichever is lower) of the property and multiply the result by 100 to get a percentage. For example, if you are purchasing a property valued at $300,000 and you are borrowing $240,000, the LTV ratio would be calculated as follows:

    LTV Ratio = (Loan amount / Appraised value or purchase price) x 100
    LTV Ratio = ($240,000 / $300,000) x 100
    LTV Ratio = 80%

    How LTV Ratio Affects Mortgage Eligibility
    Lenders consider the LTV ratio as a crucial factor in assessing the risk associated with a mortgage loan. A higher LTV ratio indicates a larger loan amount relative to the value of the property, which is perceived as a higher risk for lenders. Here’s how the LTV ratio affects your ability to secure a mortgage:

    1. Impact on Interest Rates: In general, a higher LTV ratio often translates to higher interest rates on the mortgage. Lenders charge higher interest rates to mitigate the increased risk associated with a higher loan amount in comparison to the property value. To secure more favorable interest rates, a lower LTV ratio is preferable.
    2. Loan Approval: Lenders have guidelines and restrictions based on the LTV ratio. While the specific thresholds may vary, a lower LTV ratio generally increases your chances of mortgage approval. Lenders are typically more comfortable lending to borrowers with a greater stake in the property, as it serves as a cushion against potential losses in case of default.
    3. Mortgage Insurance: If your LTV ratio exceeds a certain threshold (typically 80%), lenders often require you to obtain mortgage insurance. This insurance protects the lender in case of default, but it adds an additional cost to your monthly mortgage payment.
    4. Down Payment Requirements: The LTV ratio directly influences the down payment required. A lower LTV ratio means a higher equity stake in the property, thus reducing the amount you need to borrow. Consequently, a lower LTV ratio generally leads to a lower down payment requirement.

    Understanding the Loan-to-Value ratio is crucial when applying for a mortgage. The LTV ratio acts as a risk assessment tool for lenders and plays a vital role in determining your mortgage eligibility. Maintaining a lower LTV ratio not only improves your chances of approval but also provides access to more favorable interest rates and reduces the need for mortgage insurance. If you’re planning to purchase a property or refinance an existing mortgage, make sure to consider the Loan-to-Value ratio and strive to maintain a healthy balance between the loan amount and the property value.

  • Unlocking Mortgage Affordability

    Unlocking Mortgage Affordability

    As a trusted mortgage broker serving the vibrant city of Windsor, I understand the importance of helping prospective homebuyers determine their mortgage affordability. Buying a home is a significant financial commitment, and understanding how much of a mortgage payment you can afford is crucial for long-term financial stability. In this article, we will explore the rules of home affordability, discuss how your monthly payment is calculated, and shed light on other factors to consider when determining your affordable mortgage payment.

    The Rules of Home Affordability: Before diving into mortgage calculations, it’s essential to understand the rules of home affordability that guide borrowers:

    • Gross Debt Service (GDS) Ratio: The GDS ratio is the percentage of your gross monthly income that can be allocated toward housing costs. It includes mortgage payments, property taxes, heating expenses, and half of any condo fees (if applicable). Lenders typically prefer a GDS ratio of 35% or lower.
    • Total Debt Service (TDS) Ratio: The TDS ratio encompasses all your debt obligations, including housing costs, credit card payments, car loans, and other loans. Lenders generally recommend a TDS ratio of 42% or lower to ensure you can manage your overall debt load.
    • Mortgage Stress Test: Since 2018, borrowers in Canada must undergo a mortgage stress test. This test assesses your ability to manage your mortgage payments at a higher interest rate than the one you will actually receive. The minimum qualifying rate is the greater of the Bank of Canada’s five-year benchmark rate or the contract rate plus 2%.

    Calculating Your Monthly Mortgage Payment: To calculate your affordable monthly mortgage payment, follow these steps:

    1. Assess Your Financial Situation: Begin by evaluating your income, including stable sources such as employment, self-employment, or investments. Take into account your monthly expenses, including debts and other financial obligations. This assessment provides a clear picture of your financial health.
    2. Determine Your GDS & TDS Ratios: Calculate your GDS and TDS ratios by dividing your monthly housing costs and total debt obligations, respectively, by your gross monthly income. Ensure that your GDS ratio remains at or below 35% and your TDS ratio at or below 42% to meet lender guidelines.
    3. Consider Your Down Payment: Determine the amount you can allocate for a down payment. In Canada, a minimum down payment of 5% is typically required, but a higher down payment can lead to lower monthly payments and potential cost savings over the long term.
    4. Factor in Interest Rates & Terms: Consider prevailing interest rates and loan terms. Your mortgage broker can provide you with up-to-date information on interest rates and assist you in selecting the most suitable loan term for your financial goals.
    5. Include Additional Costs: When determining your affordable mortgage payment, consider other expenses related to homeownership. These may include property taxes, home insurance, maintenance costs, and potential condo or strata fees. These additional costs will affect your overall affordability.

    Other Considerations for Mortgage Affordability: While calculating your monthly mortgage payment is a crucial step, it’s essential to consider the broader financial context. Here are a few key factors to keep in mind:

    • Emergency Fund: Building and maintaining an emergency fund is vital. Unexpected expenses can arise, and having a financial cushion will provide peace of mind and ensure you can comfortably manage your mortgage payment even during challenging times.
    • Future Goals & Lifestyle: Consider your long-term goals and lifestyle when determining your mortgage payment. Assess how homeownership fits into your plans, such as career growth, starting a family, or other major life events. Balancing your mortgage payment with other financial aspirations is crucial.
    • Homeownership Costs: Remember that homeownership comes with additional costs beyond the monthly mortgage payment. These may include utilities, home maintenance, renovations, and potential increases in property taxes. Evaluating these costs will help you estimate the overall financial responsibility of owning a home.
    • Seek Professional Guidance: As a Mortgage Broker, I strongly advise seeking professional guidance throughout the homebuying process. A knowledgeable mortgage professional can help you navigate the intricacies of mortgage affordability, assist with pre-approval, and provide personalized advice tailored to your specific circumstances.

    Determining how much of a mortgage payment you can afford is a vital step in achieving your homeownership dreams. By adhering to the rules of home affordability, calculating your GDS and TDS ratios, and considering your down payment, interest rates, loan terms, and additional homeownership costs, you can establish an affordable monthly mortgage payment. Additionally, evaluating factors like emergency funds, future goals, and homeownership expenses will contribute to a well-rounded financial plan. As an experienced Mortgage Broker, I am here to provide expert guidance and support throughout your homebuying journey, ensuring you make informed decisions for a bright and financially secure future.

  • How to Find the Best Mortgage

    How to Find the Best Mortgage

    When shopping for a mortgage, it’s important to do your research. A mortgage is, after all, the biggest financial commitment most Canadians will ever make. So it’s no surprise that one of the first things prospective homebuyers do is to shop around for the best mortgage rate they can find. And while getting a great rate is important, if that’s your only focus, it could end up costing you.

    Beyond the Rate – What to Look for in a Mortgage?
    With so many banks and financial institutions vying for your business, mortgages these days come with a variety of options. In a way, shopping for a mortgage is like shopping for a new car. But you would never base your car buying decision on one single factor, would you? The same goes for your mortgage. Let’s take a look at some of the things you should look for in a mortgage, and why they’re important.

    The Difference Between Mortgage Term & Amortization
    Both the term and amortization of a mortgage refer to a period of time. The amortization of a mortgage represents the entire repayment period of the mortgage. In other words, the number of years before your mortgage will be paid in full. In Canada, the standard amortization period for most mortgages is 25 years, in fact, 25 years is the maximum amortization for any mortgage that is insured by the Canada Mortgage and Housing Corporation (CMHC). Conventional mortgages (non-CMHC) can often be stretched over 30 years.

    Conventional vs Insured Mortgages (CMHC)
    Whether your mortgage will be conventional or CMHC insured depends on the amount you have available for a down payment. To qualify for a conventional mortgage, you’ll need to provide at least 20% of the purchase price as a down payment. That can be difficult for many new homeowners, especially in expensive markets like Toronto, or Vancouver, which is why CMHC enables borrowers to obtain an insured mortgage with as little as 5% down.

    The impact of CMHC premiums on the overall cost of a mortgage can be significant and should be considered when deciding how much mortgage you can afford. To illustrate the difference between conventional and CMHC, let’s assume the purchase of a $300,000 home:

    Conventional Mortgage (20% down payment)
    Purchase Price $300,000 – Down Payment $60,000 = Total Mortgage Amount $240,000

    CMHC Insured Mortgage (5% down payment, with 4% CMHC)
    Purchase Price $300,000 – Down Payment $15,000 + CMHC $11,400 = Total Mortgage Amount $296,400

    In the first scenario, assuming a 25-year amortization, monthly payments, and an interest rate of 2.87%, your total cost to pay off the mortgage would be $335,952. Using the same criteria, the CMHC mortgage would cost over $414,000, a difference of almost $80,000. Of course, interest rates will change over the years, and there are other incidental costs not included here, such as the PST on the CMHC premium, but this gives you an idea of why getting the best interest rate shouldn’t be the only consideration when shopping for a mortgage.

    Fixed Rate vs Variable Rate
    One decision you’ll need to make is whether to go with a fixed or variable mortgage. With a fixed mortgage, the bank is guaranteeing you an interest rate that won’t change for the length of the term you choose. For example, if you went with a 5-year mortgage term, at a rate of 2.99%, you’d have the security knowing that your rate won’t change for the next 60 months. You have a peace of mind knowing that your mortgage payment amount also, won’t change.

    With a variable rate, you’re choosing a floating rate that is tied to a benchmark rate, usually the Bank of Canada prime rate, or your bank’s prime rate, which may differ slightly. While fixed rates offer safety, and cost certainty, variable rates offer their own advantages. With a variable rate, you stand to benefit in a falling rate environment. If the Bank of Canada reduces the prime rate, your mortgage rate will drop accordingly. Not only that but if fixed rates drop, you usually have the option of switching into a lower fixed rate at any time. With a fixed rate, it’s much more difficult to get out of your existing term without paying a large penalty. The risk with a variable rate mortgage is that if rates increase sharply, you could find yourself in the precarious situation of having to increase your mortgage payment in order to keep up with the contractual amortization.

    Open vs Closed Mortgage
    Most borrowers will choose a closed mortgage, regardless of whether they’re going with a fixed or variable interest rate. The reason is simple: closed mortgage rates are lower. An open mortgage, on the other hand, is just as it sounds. The borrower has the option of breaking the term, or paying the mortgage in full, without incurring a penalty (in some cases, you may see an administration fee associated with breaking an open mortgage).

    There are situations where it may be worth going with an open mortgage, even at a higher interest rate. For example, if you were planning to payout your mortgage in full in the near future, you would avoid the costly penalties associated with a closed mortgage. Potential scenarios would be if you were expecting a large inheritance, or if you were selling your home, with no intention of buying another one, or you were planning to rent a house or apartment instead.

    Understanding Your Mortgage Prepayment Options
    This is one that not a lot of people think about when shopping for a mortgage. Even if you go with a closed mortgage, most financial institutions will allow you to pay the mortgage down ahead of schedule, by providing the borrower with various prepayment options.

    However, not all mortgages are created equal. In other words, the prepayment flexibility can vary greatly between mortgage providers. Some banks or credit unions will allow you make lump sum payments of 10% of the original mortgage amount each calendar year, others will allow 15%.

    To use another example, both CIBC and TD Bank will allow you to increase your regular monthly principal and interest rates by double (100%) without any penalties, while other institutions will only allow you to increase your payment by 10-20%. If you have a lot of budget flexibility and plan to pay down your mortgage more quickly, the difference in policy could save you thousands. When shopping for a mortgage, make sure you understand the prepayment options that are offered.

    Dealing with the Bank or a Mortgage Broker?
    One of the decisions you’ll need to make when you begin your search for a mortgage is whether to go directly through your bank or deal with a mortgage broker. For years now, mortgage brokers have been a popular option, and represent a perfectly valid solution. A mortgage broker offers some key advantages. For starters, they deal with dozens of financial institutions, so they really are a great place to go, to source out the best mortgage rate.

    If you’re not considered a strong borrower, perhaps your credit history isn’t great, a mortgage broker can find a financial institution that will be willing to take on your application. Generally speaking, Canada’s big six banks tend to be the most conservative when it comes to mortgage lending, so it can be tough to meet their criteria if your credit is less than stellar, or your employment situation is not standard. This is where a broker can add value.

     

  • How to Get Around Canada’s New Mortgage Rules

    How to Get Around Canada’s New Mortgage Rules

    The tighter lending rules that came into force July 1st are making it harder for some Canadians to buy homes, but mortgage professionals say there’s no reason to panic. The Canada Mortgage and Housing Corporation (CMHC) announced plans in early June to reduce borrowing limits, demand higher credit scores and restrict down payments for anyone who needs default insurance from the agency. That kind of insurance is mandatory for ‘high-ratio’ buyers putting less than 20% down on a home. While the change is scary, buyers still have ways to shape up in the eyes of the CMHC — or dodge the agency entirely.

    Evan Siddall, President & CEO of CMHC, explains the changes are meant to steady the economy in the age of COVID-19 by controlling debt and protecting lenders from people who pose a high risk of defaulting. While the rules will sting for some people trying to crack their way into the real estate market, they could be a boon for others. By reducing the number of buyers, the crown corporation hopes to quell demand and balance out home prices.

    “COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” Siddall explained in a statement. These actions will protect homebuyers, reduce government and taxpayer risk, and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.

    What are the new rules?
    First, homebuyers seeking a high-ratio mortgage are no longer able to submit a down payment with money borrowed from credit cards, unsecured personal loans, or lines of credit. Only ‘traditional sources’ of cash, such as savings, equity from the sale of a house or financial support from relatives, will fly.

    Second, the minimum credit score to qualify has jumped from 600 to 680. If you don’t know your credit score, you can check it for free online. If it’s too low, you’ll have to take steps to improve it.

    Third, borrowers are now capped at spending 35% (GDS) of their gross income on housing. That includes the mortgage itself, property taxes and utilities. They’re also only able to spend up to 42% (TDS) of their gross income, taking into account all of their other loans and credit.

    Before, buyers could spend up to 39% of their gross income and borrow up to 44%. That means potential buyers saw their purchasing power cut by up to 12%. For example, someone with a $100,000 income buying a single-family home could have qualified for a $490,000 mortgage with 5% down before July 1st. Now, their limit has dropped to $435,000.

    What should homebuyers do?
    It’s important to recognize that, if you’re not a risky borrower in the eyes of the CMHC, these changes may not affect you at all.
    “They are impacting a subset of borrowers who need mortgage insurance,” says Toronto-based broker Sean Cooper, author of the book Burn Your Mortgage. Even those homebuyers, he says, “still have options.”

    You see, the government doesn’t care whether it insures your mortgage. It just needs to know your mortgage is insured. Homebuyers excluded by these changes should look around for a lender that also works with Genworth or Canada Guaranty, the country’s two private-sector providers of mortgage default insurance. Those companies have decided not to tighten their restrictions.

    “They are usually lockstep with the CMHC, so this is definitely out of the ordinary,” says Cooper. So even if the CMHC thinks you’re a bad bet, you’ll still find a range of lenders that want your business.

    Is anyone else affected?
    The other good news is that the new lending rules don’t impact homeowners who want to take advantage of today’s historically low rates.

    “As of right now, the rules haven’t changed for refinancing,” says Cooper. “The fact that Genworth and Canada Guaranty didn’t match the CMHC’s changes makes me think that there’s less likelihood of more changes in the future.”

    Today’s rock-bottom rates are predicted to last for at least 12 to 18 months, until the economy starts to stabilize from COVID-19 crisis. That means there’s no better time to see how much you can save on interest and your monthly mortgage payments. The opportunity to hold on to more cash is especially welcome while the country’s financial outlook remains uncertain.

  • COVID-19: Should You Buy a Home Now, or Wait?

    COVID-19: Should You Buy a Home Now, or Wait?

    Housing markets across the country are changing swiftly—but with interest rates at historic lows, this might be a good time to buy.  Here are all the factors to consider.

    It almost goes without saying that COVID-19 has had a far-reaching impact on the Canadian economy and healthcare system in the first half of 2020. As expected, the spring housing market was much cooler than 2019, with the Canadian Real Estate Association (CREA) confirming that May 2020 recorded the lowest volume of sales in May since 1996.  Despite the significant drop in sales volume due to the pandemic, though, national home prices remained relatively stable.

    After a quiet April, market activity began to pick up in local housing markets across the country in May: more buyers resumed their home searches, and more sellers began to list their homes. With more home buyers and sellers hopping off the sidelines, housing competition is starting to heat up in many regions.  In Toronto and Vancouver—Canada’s largest markets—demand and supply were evenly matched in May, whereas in Southern Ontario markets like Ottawa and Hamilton-Burlington, buyers faced ever fiercer competition for available homes than last year.

    Given how swiftly conditions have changed and continue to evolve in housing markets across the country, prospective home buyers may be wondering: Is now a good time to jump into the market?  Perhaps.  With interest rates at historic lows, if you are able to buy and hold a home for the medium to long term, this might be a good time to buy.  Here are all the factors you should consider as you make your decision.

    Account for your finances and your lifestyle needs.

    For many Canadians, finances are just one part of the story, and the decision to buy a home often goes beyond the dollars and cents.  To put it simply, people need to make changes in their lives and move—regardless of whether there is a pandemic or not.  If you have done the math and are confident about your financial ability to carry a new home, this is a great opportunity to take advantage of low interest rates.

    Consider why you want to buy in the first place.

    Perhaps you’ve had a relationship or family change; a divorce or a baby on the way are common reasons people choose to move.  Alternatively, do you want to be closer to family, in a good school district, or have better transit access?  If you started planning a move before the pandemic, consider whether and how COVID-19 has altered these priorities.

    Once you’ve determined why you need to move, consider how your lifestyle needs may evolve.  After all, you will be living in the home you purchase for at least a few years, so you need to think about whether the home you buy is a fit for your needs both today and tomorrow.  If you can find what you want, in the location you desire, and are comfortable living there for at least five years, take the leap.

    Get local with market data.

    When you’ve made the decision to move forward with a home search, you’ll likely turn your attention to how the housing market is performing.  After all, buying a home is a major personal commitment, and also one of the biggest financial investments most people will make.  With everything going on, in addition to sales updates from national and local real estate boards, a number of Canada’s most established financial institutions, economists and housing corporations have attempted to predict the size and duration of the impact of COVID-19 on the housing sector.

    While high-level data from real estate boards and financial institutions can provide valuable perspective on how the housing market is performing at the macro-level, real estate is hyper-regional, and in many respects, local.  The type of property, the neighbourhood you’re interested in, and your budget will all play a role in the level of competition you’re likely to face and ultimately the price you can expect to pay.

    Working with a real estate agent you trust is one way to cut through the noise and understand how far your dollar will go in real estate based on your situation and your needs.  A good real estate agent acts as a trusted expert who can provide you with the facts, data and insights that are most relevant to your purchase decision, so you can make an informed choice that you are comfortable with now and in the future.

    Remember that real estate is a long-term decision.

    Finally, remember that real estate is a long-term investment.  If you are looking to make short term, speculative investments, this is a particularly risky time to do that in real estate.  Further, churning real estate has real costs that eat into any sale price, which include but aren’t limited to land transfer taxes, realtor professional fees and moving costs.

    Once you’ve carefully weighed your personal needs against your financial appetite and obligations and have also considered the context of the real estate market in your area, take the plunge if you’re confident that everything lines up.  If you can buy and hold for the long term, there are some great pockets of opportunity out there.

     

  • Canada’s Climbing Debt-to-Income Ratio: What You Need to Know

    Canada’s Climbing Debt-to-Income Ratio: What You Need to Know

    Here we break down what the debt-to-income ratio means—for the nation’s financial health, and for yours. The latest headlines tell a now-familiar story: Canadian household’s debt loads have increased once again, with the debt-to-income ratio hitting 176.9% in June 2020. But what is this ratio, why is it rising, and—most importantly—do you need to worry about it?

    What is the debt-to-income ratio?

    First things first. The debt-to-income ratio is a measure of how much debt a household is carrying, relative to its disposable income—that is, the money you have available to spend or save, after taxes and other non-discretionary expenses, such as EI and CPP contributions, are made.

    A ratio of 176.9% means that, across all Canadian households, we collectively owe almost $1.77 for every dollar of disposable income we have. That’s very close to the all-time high of 178% in late 2017.

    How did we get here?

    There are two overarching reasons why we’ve ended up with our current level of collective debt.

    Debt is cheap.
    The basic laws of economics tell us that when prices fall, demand increases.  Here’s why that’s important for the debt-to-income ratio: what really matters is not the total amount borrowed, but the cost to service that debt over time—that’s the debt-service ratio.  The lower the interest rate, the cheaper it is to borrow money and service that debt, and thus the more debt a household can afford to carry.

    Over time, the debt-service ratio has remained pretty constant even as the household debt-to-income ratio has risen.  In 1980, for example, the ratio of household debt to personal disposable income was just 66%, or $0.66 owed for every dollar of disposable income.  Back then, however, the bank rate—the minimum rate of interest that the Bank of Canada charges on one-day loans to financial institutions, now superseded by the target interest rate—was 12.89%, compared to just 0.25% today.

    In practical terms, $100 borrowed for a year at 1980 rates would cost nearly 20 times as much as it would to borrow today.  This astonishing drop in interest rates accounts for why the debt-service ratio has remained relatively steady over time, fluctuating between about 12% and 15% from 1990 to the first quarter of 2020, and falling from 14.81% in the last quarter of 2019 to 14.67% in the first quarter of 2020.

    Our relationship to debt has changed.
    Over time, we’ve become more and more accepting of borrowing as a normal part of household finances. When the ability to borrow became available as a tool to “bring forward” our household spending, lots of us decided to do so. And as the cost of borrowing progressively dropped, we ramped up our debt.

    This behaviour is consistent with what financial economists call consumption smoothing, or the idea that we can maximize happiness by spreading our resources over our lifetimes to achieve the highest possible total standard of living. From this point of view, in the words of former Bank of Canada Governor Steven Poloz, “Simply put, debt is a tool that allows people to smooth out their spending throughout their life.”

    Does the debt-to-income ratio matter?

    The general consensus is that excessive levels of debt make households financially vulnerable.  Economic shocks are sudden and unpredictable changes in the variables that affect the overall economy, such as an unforeseen rise or fall in the cost of commodities, an unexpected shift in consumer spending, or a housing or stock market crash.

    At the individual level, however, you’re likely more concerned that too much household debt might mean you can’t make your mortgage, student loan or car payments if something unexpected happens—such as normal fluctuations in interest rates, or the loss of your job.  (These are personal financial shocks, compared to the economy-wide macroeconomic shocks of falling commodity or housing prices.)  Research into Canadians’ debt shows that younger people, those with household income of at least $100,000, and those with mortgages have more debt than older Canadians, non-homeowners, and those with lower incomes.

    The use of debt is also correlated with optimism about our financial futures.  People who expect their financial situation to improve over time are much more likely to have more debt: a Statistics Canada study shows that peoples’ expectations about their financial situation are strongly correlated with both their levels of indebtedness and their debt-to-income ratio.  Even the most optimistic households, however, are still subject to borrowing rules set by lenders, such as the new mortgage insurance rules for the Canadian Mortgage and Housing Corporation, which will go into effect on July 1, 2020.

    What do I need to know about the debt-to-income ratio to plan my financial life?

    Here are two ways to think about whether the debt-to-income headlines affect you.

    The average might not apply to you.
    The debt-to-income figure represents an average for all Canadian households, including those who have little or no debt—meaning it must also include some very highly indebted Canadians.  In fact, research from the Bank of Canada shows that the number of highly indebted Canadians —those with a debt-to-income greater than 350%—doubled from 2005 to 2014, from about 4% to 8% of all households.  So a rising average amount of debt may not capture individual household changes, including yours.

    Your individual circumstances matter.
    The more debt you have, the more vulnerable you are to “shocks” that can impact your ability to repay it.  At the same time, however, your age, income, appetite for debt and expectations about your financial future will all combine to impact your approach to borrowing.

    If you want to maximize your financial peace of mind and protect yourself from the risk of being unable to meet your debt obligations over time, you could minimize borrowing while prioritizing paying back any existing debt.  A personal debt management plan, which maps out how you’re going to repay what you owe over time, will allow you to see past headlines to understand debt as one tool in your financial toolbox.

     

  • Millennial’s Guide to Home Buying

    Millennial’s Guide to Home Buying

    The transition from rent to home ownership has many obstacles for millennials. We’ve put together this guide to help young people make home ownership work for them. Buying your first home is one of the biggest financial decisions you’ll ever make.  For millennials struggling with lower income and savings, the dream of home ownership can appear out of reach in today’s market.

    All hope is not lost. Low mortgage rates and a gradually improving job market are empowering millennials to invest in property rather than rent. By taking a few practical steps, you can be well on your way to buying your first home. Investing in your first home requires careful planning, effective judgement and setting reasonable expectations.  Below is a six-step process for making that happen.

    1. Shop within your means.

    If you’re a millennial first-time buyer, the selection of homes you can afford is likely much smaller than established buyers. After all, you don’t have any equity yet, and will be relying purely on savings to invest in your first down payment. An important part of setting reasonable expectations is shopping within your means. Even if you qualify for a large mortgage, there’s no rule that says you must use it all. As a first-time home-buyer, your goal should be to finally start building equity. If you want a property but can’t afford it, you shouldn’t buy it. It’s as simple as that!

    1. Make sure you have enough for a sizeable down payment.

    In Canada, most professionals will advise you to make at least a 20% down payment on your property to avoid paying homeowner insurance.  While this is recommended, it might not always be possible, especially if you don’t want to delay your first real estate investment.  Even if you can’t pay at least 20%, you should still be prepared to make a decent down payment to minimize the total loan amount.  In Canada, 5% is the absolute minimum you must put down.

    1. Sort out your finances.

    Home ownership carries significant expenses that extend beyond your down payment and monthly mortgage payment.  Property tax, insurance, closing costs and utilities must all be factored into your decision both at the time of closing and after you’ve moved in.  When deciding to enter the market, be sure you have enough money to cover the down payment and all the ancillary costs associated with closing your home.  You’ll also want to budget carefully to make sure you can afford to pay your mortgage and living expenses after you’ve moved in.

    1. Compare neighbourhoods and regions.

    Most home-buyers are limited by geography in shopping around for property.  For millennials living in the big city, this can make affordability a greater challenge.  That’s why it’s essential to compare neighbourhoods and property types.  It’s equally important to consider location and whether you are willing to commute to work each day.  Proximity to your job may be convenient, but will likely be more expensive, especially if you live in a big city.  Working with a real estate agent can help you develop a better view of property values based on location and property type.

    1. Use a Mortgage Broker.

    Financing a home can be a complicated process.  That’s why more and more Canadians are turning to mortgage brokers to steer them in the right direction.  It used to be the case that most people went straight to their bank to finance their mortgage.  Now, many people visit a mortgage broker first.  That’s because a broker is tasked with one job: finding you the best deal possible.  They work with the big banks as well as non-traditional lenders to match you with the best interest rate and lending terms on the market.

    1. Maximize your benefits.

    The government has made it a little easier for first-time home-buyers to enter the market.  If you’re a first-time buyer, you can use your RRSP account to finance your down payment tax-free up to a maximum of $25,000.  This means you can take up to $20,000 from your RRSP account and put it toward a down payment with no tax penalty.  The First-Time Home-buyer Credit can also help you reduce the amount of taxes you owe.  Various provinces, such as Ontario, also have a land transfer tax refund that will greatly reduce the amount of land transfer tax you owe.

    As a millennial, shopping around for your first home can be both rewarding and challenging.  This six-step process will help you make the most out of your experience.