6 Ways For Homeowners to Build Wealth

History has proven that homeownership is a solid long-term investment. You build your equity stake through your regular mortgage payments and your home’s price appreciation over time. But wealth building doesn’t have to stop there. Here are 6 ways to do more throughout your mortgage years. 

1.      Speed up your mortgage pay down. Change from monthly payments to weekly or biweekly, which increases your number of payments and takes years off your mortgage. Also consider putting found money like raises and tax refunds against your mortgage principal. Check your mortgage contract for the amount you can prepay each year.  

2.      Get a financial reset when needed. Too much high interest debt over long periods of time is a definite wealth killer. It chokes your cash flow and having multiple debt payments can be stressful. If you have enough equity, you may be able to move that debt to your lower-rate mortgage, giving you one comfortable payment and thousands in interest savings.

3.      Renovate using your lowest cost funds. With historically low mortgage rates, homeowners with enough equity are using the opportunity to roll the cost of their renovation into their mortgage for one easy monthly payment, and then using their prepayment privileges to pay it off faster. It’s a win win when you increase the comfort and enjoyment of your home, while also improving the long-term value.

4.      Apply for incentives to help pay for energy saving investments in your home.

The federal government recently launched a new program that offers Canadians grants of up to $5,000 to pay for energy-saving home upgrades, such as insulation, furnaces, solar panels, windows, and doors, and up to $600 to help with the cost of home energy evaluations. Additionally, if you paid mortgage default insurance when financing your home, you can also get a savings boost from your mortgage insurer. If you make retrofits to improve energy efficiency, you can apply for a refund of either 15 or 25% of the default insurance premium that you paid. Applications are accepted within two years of the closing date of your mortgage.

5.      Look at your mortgage renewal as an important moment of opportunity. When your lender sends out a letter suggesting you renew your mortgage at their current offer, get in touch. Everything pertaining to your mortgage can be renegotiated, giving you the opportunity to get the best possible deal for your current situation, which may be very different from when you first got your mortgage.

6.      Know your prepayment penalty. When choosing between fixed-rate mortgages, be sure to compare how the early payout penalty will be calculated. If you ever need to get out of your mortgage early, having the right mortgage could save you thousands. If you take a lower rate mortgage with a high prepayment penalty, the benefit of that lower rate could mean nothing if you overpay on the penalty to get out of your mortgage.

We are here to save you money and help you build wealth throughout your mortgage years. Get in touch at any time!

What affects mortgage rates?

Government policies to protect the economy during the pandemic resulted in exceptionally low mortgage rates for both fixed- and variable-rate mortgages. As we start moving towards recovery, fixed rates have started to edge upwards. The prime rate, which variable rates are based on, has not increased. So why did fixed go up but not variable? Let's look at the mechanics of both.

How are variable rates set?
The chartered banks set the prime lending rate (the rate they offer their best customers). They base their decisions on the Bank of Canada's overnight rate because that's the rate that influences their own borrowing. There are approximately eight times a year the Bank of Canada makes rate announcements. Variable mortgage rates and lines of credit move in conjunction with the prime lending rate, with most lenders currently offering variables at prime minus a certain percentage. The Bank of Canada in their most recent announcement did not increase the overnight rate and did not mention when they foresee the need to increase rates.

How are fixed rates set?
Fixed-rate mortgages are a little different. Banks predominantly use Government of Canada bonds to raise money for fixed-rate mortgages. In the bond market, interest rates can fluctuate more often since they're subject to the changing moods of traders and bond investors as they try to figure out how fast the economy will grow and where inflation is headed. That's why you watch the bond market for clues on where fixed mortgage rates will go next. Recently the yield for 5-year government bonds went up, causing fixed mortgage rates to follow suit.

Why are there so many different mortgage rates?
Fixed and variable are not the only factors affecting rates. There are rate premiums for certain situations i.e., rental properties, 30-year amortizations. There are different rates for insured, insurable and uninsured mortgages. Rock-bottom online rates often come with restrictions and high penalties. The rate you qualify for can be very different from what your neighbour got. That's why it is so important to get in touch for unbiased professional advice when you need to determine the best mortgage and rate applicable to your situation, whether it's for a purchase, renewal, or refinance. Knowledge is power!

Is your mortgage on track?

If you're like most people, you don't think of your mortgage as something that needs to be reviewed on an annual basis, but it's essential if you want to make sure you're on track to achieve your financial goals. Your circumstances or priorities may have changed over the last year, which means your mortgage needs may have also changed.

An annual mortgage checkup will help you make sure that:

·         1. With the historically low rates caused by the pandemic, we’ve done the analysis needed to determine if you can take advantage of those low rates;

·         2. You are using your prepayment privileges to maximize your mortgage principal reduction;

·         3. Large amounts of high-interest debt are transferred to a lower interest rate so you can have one manageable payment, boost your cash flow, and save on interest costs (if you have enough equity in your home);

·         4. You get a professional review of your options if your mortgage is renewing in the next 12 months; and,

·         5. You have access to the lowest-cost funds for renovations, education funding, an investment property, new business or other large looming expense.

Or you may have mortgage-related questions that you want to ask like whether you should help a family member buy a house, what your mortgage options are if you want to trade up or downsize, whether you should renovate or relocate, or how you can improve your credit score.  

If you haven't had a mortgage checkup in the last six months, book your no-obligation review and make sure your mortgage incorporates what may be ahead: it could pay big dividends and is the best way to get you where you’re going in your financial future. I'm here to make sure you get the most out of homeownership. Get in touch at any time!

5 Reasons To Get a Second Opinion On Your Mortgage Renewal

Given the large financial commitment of a mortgage, it's surprising that so many homeowners sleepwalk through the mortgage renewal process and don't look at all their options in the marketplace. Many accept whatever their lender offers or just have a short negotiation to shave a few percentage points off.

While it's tempting to choose what is easiest, it's so important to have a mortgage expert give you a second opinion and start working for you as early as 9 months prior to renewal. Here's why:

1. With access to over 50 lenders and hundreds of mortgage options, we can make sure you are being offered the best rate and mortgage possible.

2. If you have enough equity in your home, you may be able to move high-interest debt to your lower-rate mortgage, improving cash flow and saving on interest. Renewal is the perfect time to do this we can run the numbers to see if this strategy makes sense for you.

3. Having a good credit score is important if you want to switch your mortgage to a new lender for a better deal. You have control over your credit score, and may want to discuss credit improvement strategies.

4. Taking on new debt or an employment change prior to renewal can affect your ability to move your mortgage to another lender. We can discuss the potential impact of changes to your personal situation.

5. If you need to free up cash flow for specific needs or life situation, a 30-year amortization might be an option for you to consider (20% or more in equity required).

At renewal, you can renegotiate everything pertaining to your mortgage – with no penalties – which means this is an important moment of opportunity. So as soon as you hear from your lender about your mortgage renewal, get in touch for an important second opinion!

5 Reasons Homeowners Refinance Their Mortgage

There has been a flurry of refinance activity this year given our rock bottom interest rates, providing homeowners with access to today’s low rates and the most cost-effective way to get needed funds. Refinancing means getting out of your current mortgage and replacing it with a new one. A minimum of 20% home equity is required to complete a refinance.

There are several compelling reasons why homeowners refinance their mortgage:

1.      To get a lower interest rate.  Refinancing to get a lower rate makes sense if the savings you achieve with the lower rate are greater than the cost of getting out of your existing mortgage.

2.      A much-needed financial reset. Debt restructuring is one of the primary reasons homeowners refinance. If you have too much high-interest debt that is strangling your monthly cash flow, you may be able to get the breathing room you need by rolling that debt into a new low-interest mortgage. You’ll get one manageable monthly payment, immediate cash-flow relief, and long-term interest savings. It is also a great way to improve and protect your credit score.

3.      Renovate. Homeowners are renovating to adapt to their new covid lifestyles, whether it’s to improve the quality of their lives, or for functionality like a new home office.  At the same time, your renovations can increase the value of your home, a nice added benefit.

4.      Invest in the future. If you’ve found the perfect cottage or the retirement home of your dreams, refinancing may be the way to make that purchase happen if you’re not quite ready to sell your primary residence. Or perhaps you are thinking rental property for a long-term wealth building opportunity and a source of retirement income.

5.      You need funds. You may be able to get the funds you need for major expenses, like a new business, tuition, or wedding, often a better strategy than loading it all onto high-interest credit cards or an unsecured line of credit.

 Since breaking your current mortgage comes with a fee, We would be happy to complete a personalized cost/benefit analysis so you can determine whether refinancing makes sense. The fee to break your mortgage depends on several factors so it’s best to get in touch to discuss. It is not expected that rates will go much lower so there may not be any benefit to waiting to see if you can get a better deal later.

 Get in touch at any time. It’s our job to help you create financial security and enjoy life to the fullest

Important Credit Score Tips

There’s a virtual credit file with your name on it! When it comes time to take out a mortgage, that file gets opened and the result is a credit score that will help determine whether and how much you can borrow and at what rate.  

The good news is that you are entirely in control of your own credit score. Even if your past credit history has been bumpy, there are steps you can take to increase your score: showing lenders that you are a good risk and worthy of their best rates. Here are a few important tips:

1.      Never let a bill get past due. This is the single biggest factor in your credit score: paying your bills on time. Set up automatic payments if you can or keep a careful calendar. This one habit carries the most weight when it comes to your credit score so be sure to take it seriously.

2.      Create your own credit limits. If the credit card company gives you a credit limit of $10,000, create your own limit of $3000: or no more than 30% of the available funds. Have more than one credit facility? Balance them out. It’s better to be at 30% on three cards than have one at the limit and two that are never used. You want to show that you are using your credit but using it wisely. 

3.      If you are getting too close to your limit, pay more than the minimum every month if you can, and work towards clearing off your balance entirely. Having your credit limits increased can help if that doesn’t cause additional spending.

4.      Keep that history. Make sure you do have a credit history. You may have a low score because you do not have a record of owing money and paying it back. Since history is important, you don’t want to cancel a card and lose that history. The longer you’ve had a card, the clearer the picture is of how you manage your debt. If you feel you really need to cancel a card, get advice first.

5.      Never ever let a bill go to collections. This can be a tough one if you’re short of money or a bill is under dispute. But a bill that is sent to collections is - next to bankruptcy - one of the blackest marks on your good credit name. If you’re having trouble paying, talk to the creditor about a negotiated payment plan. 

6.      Be selective. Applying too frequently for credit has a negative impact on your score. A raft of cards looks like you’re an out-of-control spender and not a good credit risk. So when you’re asked - would you like to apply for our Store Card to save on your purchase – just say no; the high rate that goes with that card isn`t worth your savings on that particular purchase.

Get in touch if you want to discuss taking control of your credit score. If you need to get a mortgage while you’re still working on improving your score, we can also advise how that may be possible. We do this all the time and am here to help! 

No Need To Panic Over New Mortgage Rules

No one has a crystal ball to see what the next few months - or years - will bring, but it’s likely that some Canadians will have trouble with their debt in the wake of COVID. With that possibility in mind, the Canadian Mortgage and Housing Corporation (CMHC) recently announced that it is tightening the rules for Canadian homebuyers looking for insured mortgages. Homebuyers with less than 20% downpayment require mortgage default insurance: an important protection for Canadian lenders.

Summary of the new CMHC rules (effective July 1):

1. Reduced buying power. Previously, CMHC allowed 44% of total income to service all your debt and up to 39% of total monthly income to service housing payments (principal, interest, taxes, heat, condo fees). They have now tightened this back to 42% of total income can now go to service all your debt, and 35% of total monthly income to service housing costs. This reduces a homebuyer’s purchasing power by anywhere from 9 to 11%. As an example, someone qualifying for a $500,000 home now, will see that decrease to approximately $445,000.

2. Higher minimum credit score. At least one applicant’s credit score must now be a minimum of 680, up from 600. Find out your own score - free - through Equifax or TransUnion.

3. Downpayment funds can no longer include most borrowed down payment sources. Very few buyers used this option so this will have a minimal impact.

Alternative options available

This is a great time to work with a mortgage broker! I work with dozens of lenders… and private mortgage insurers – Genworth Canada and Canada Guaranty - that are an alternative to CMHC. Neither have announced new underwriting guidelines, which means I expect to be guiding many new homebuyers through these alternate insurance channels.

Get in touch at anytime

Having trouble keeping up with all the changes lately? That’s why I’m here. My only focus is mortgages and I am always up to date on the changing mortgage marketplace. If you or someone you know is looking to buy, it’s important to get in touch early so we can put a solid plan in place. Or, if you have concerns about your current mortgage strategy, let’s talk, especially if you want to find out if you can renegotiate your mortgage to take advantage of today’s low rates, or refinance to consolidate troubling high-interest debt.

CMHC tightens lending standards to protect housing market during COVID-19

Tara Deschamps The Canadian Press June 4, 2020 6:20PM TORONTO --

Canadians looking to borrow money for a home purchase a home are in for some extra challenges after the Canada Mortgage and Housing Corporation announced changes to its lending standards on Thursday.

The country's national housing agency is increasing the qualifying credit score for mortgage insurance to 680 from 600 and limiting gross and total debt servicing ratios to their standards of 35 per cent and 42 per cent, respectively.

"COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians," CMHC head Evan Siddall said 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."

Under the changes effective July 1, CMHC will also no longer treat non-traditional sources of down payment funding, such as a personal unsecured line of credit, as equity for insurance purposes.

It will also suspend refinancing for most multi-unit mortgage insurance. The move comes just weeks after Siddall appeared before the Standing Committee on Finance in Ottawa to warn of trouble ahead for the housing market. "Our support for home ownership cannot be unlimited," he said. "Home ownership is like blood pressure: you can have too much of it. Housing demand is far easier to stimulate than supply and the result, as we've seen, is Economics 101: ever-increasing prices."

The majority of mortgages insured by the CMHC will not be affected by the more stringent qualifications. In the fourth quarter of 2019, the average debt servicing ratios were well below the 35 per cent and 42 per cent thresholds, and depending on the metric, between 63% and 82% of all qualifying mortgages were below the limit.

Spokesperson Leonard Catling said the changes "were not made because of our current book of mortgage insurance business, rather to maintain its integrity. "High household indebtedness continues to be a concern and the COVID-19 pandemic has exposed the long-standing vulnerabilities in our financial markets."

The CMHC forecasts a decline of between nine per cent and 18 per cent in average house prices over the next year because of higher mortgage debt and increased unemployment.

Siddall warned the finance committee a growing debt deferral cliff could be headed Canada's way in the fall, when some jobless Canadians will need to start paying their mortgages again after deferrals run out, and as much as one-fifth of all mortgages could be in arrears if the economy has not recovered sufficiently, he warned. "We need to avoid exposing young people and through CMHC, Canadian taxpayers to the amplified losses that result from falling house prices," he said. "Unless we act, a first time homebuyer purchasing a $300,000 home with a 5 per cent down payment stands to lose over $45,000 on their $15,000 investment if prices fall by 10 per cent," he said.

Mortgage Deferrals & Ten More Tips

I hope you and your family are enjoying good health and finding some measure of happiness in this strange spring. Certainly, many Canadians are feeling the financial pressures mount as we work together to conquer this pandemic. The good news is there are strategies that can help.

The Mortgage Deferral Program has been the first line of defense for thousands of homeowners looking for immediate financial relief.

A Mortgage Deferral is not payment “forgiveness” that allows you to simply miss payments. While you don’t pay anything at all during the relief period, your lender will add the interest accrued during the skipped period to your outstanding balance, which means your mortgage balance will increase. Your payments remain the same for the rest of your term but can increase at renewal to account for the higher balance. Some lenders may increase your payments after the deferral. We can help you determine if this is right for you and advise how to apply.

Some additional strategies and tips:

1. Consider other options. Instead of using the Mortgage Deferral Program, perhaps you can borrow what you need from a Line of Credit, making interest-only payments until the financial stress begins to ease. Other possibilities include extending your amortization or moving from accelerated to monthly payments.

2. Applying for the CERB. You need to apply to the Canada Economic Relief Benefit (CERB) for each 4-week period that your situation continues, up to a maximum of 16 weeks. If you are receiving the CERB through EI, you simply complete your bi-monthly reports to continue receiving your benefit. Keep in mind that these payments will be taxable to you next spring.

3. Get your tax return filed. If you collect the Child Benefit or GST/HST credit, you don’t want your benefits delayed. If you’ll owe money, payment has been deferred until September 1, so don’t let that keep you from filing now.

4. Check your travel points program. Many points programs allow you to redeem travel points for gift cards that will help pay for gas, groceries and other essentials.

5. Ask your credit card provider about minimum payment deferrals. Some providers will allow deferrals to help get you through a tough patch.

6. Talk to your local utilities and communications providers. Again, many are willing to talk about payment options or deferral programs.

7. Look for money leaks. Go through your credit card and bank statements with a fine-tooth comb, looking at subscriptions or other expenses that can be eliminated or reduced.

8. Make a (better) budget.  Check out the good budgeting apps that are free – Mint, Wally, or check out KOHO, which is like a chequing account with the perks of a credit card.

9. Be aware. These are unsettling times and unfortunately there has been a wave of fraudulent scams. Visit the Canadian Anti Fraud Centre for up-to-date information.

10. Adopt a positive mind. Use this time period to be better with money. There are many predictions that our new habits will carry forward with us, so adapting and keeping better money habits will serve us well in the bright future that is just over the horizon.