First time home buyers, (FTBs) represent a significant share of the real estate market.  Estimates of the size of the FTB market are above 40%. They are vital to the strength of the industry, but are FTBs more susceptible to defaulting on their mortgage? Are they higher risk and what effect will house prices have on them?

Generally mortgage default has a direct correlation to unemployment and affects all segments equally.

When an economy is on the rise mortgage defaults generally drop and vice versa. People pay their debts when they can and mortgage payments are usually the highest priority. So, whether you have a job or not determines whether or not you will default on your mortgage, not your status as a first time buyer.

Contrary to popular belief, FTBs are putting more than 5% down on their homes. Loan to value ratios, (LTVs) are on average 90% and down payments are 10% or more among this group.

The most common mortgage is one where the homebuyer is putting significant “skin in the game” making them less likely to walk away from a home or default.  They usually represent strong credit, good income, and their debt levels are reasonable.

The guidelines built into the mortgage system allow for a maximum of 42% debt service ratio.  Those being stretched too thin may cause them to delay purchasing or qualify for a smaller, lower priced home. It may be crowded but it’s affordable.

In some cases, the prospect of strong income, such as a graduate from medical, engineering or law school with a future of above average earnings will receive greater flexibility in debt service requirements.

The real estate market is one of cycles, with the prospect of falling house prices looming forever on the horizon. However the segment facing the highest risk of price fluctuation and declining equity is understandably the higher end homes and condos. These market segments tend to heat up faster causing over inflated prices, bidding wars, and tend to be in the big cities, like Toronto and Vancouver. They are also the most affected by media speculation. There is no doubt that declines in these markets have a “trickle down” effect on the rest of the market. By the time it filters down to the FTBs and their generally lower priced homes, the effect is significantly less.

The danger of FTBs walking away from their homes the way the residents in the US did during 2008-09, due to mortgages higher than house prices, is very slim.

There is no more a “built in appreciation” in home buying today that shielded homeowners from market fluctuations, 15 to 20 years ago. Appreciations of 5, 6, or 7% per year are all but non-existent. The average of 1-2% is generally the accepted rate of appreciation today. FTBs without the large appreciation in their homes and facing a down cycle will tend to hunker down, weather the storm and stay in their homes longer. This is good for them and the market.

It means the FTB without the pressure to upgrade, will build more equity, possibly start a family and further strengthen their credit position when the market rebounds.

For more information, call me Steve Clark,  705-730-2400 or email sclark@northwoodmortgage.com. I’ll be glad to answer any questions you may have and help out any way I can.

Your home. It is the single largest purchase of your life, and it costs a bundle. Mortgage freedom seems like mortgage dreamland to most. However to a surprisingly large number of people, mortgage freedom is a realistic and attainable goal. Those that have already achieved mortgage freedom the message is “Make a plan and be prepared for sacrifices.”

“Consider what you normally pay to your mortgage every month, and then imagine that dollar amount going towards your retirement savings instead. That really puts into perspective the difference paying off your mortgage even one or two years earlier can make.”

According to a recent CIBC sponsored Harris Decima poll, Canadians who have paid off their mortgages and are now living mortgage free, have given up a lot to pay them off.  Mortgage freedom became the number 1 priority for these individuals, but it wasn’t easy.

One of the findings was that 55 wasn’t the age that these hardy and determined individuals accomplished this feat but 48, a full seven years earlier.

The poll revealed some tough steps and decisions these people made to pay off their mortgages. Mortgage free respondents used one or more of the following strategies to reach their goal.

52% made lump sum payments when they could.

42% increased the amount of their regular payment.

40% increased the frequency of their regular mortgage payments.

“A key finding in this poll is that Canadians who have successfully paid off their mortgage made some difficult choices about how best to spend their money over the course of their mortgage,” said Colette Delaney of CIBC.

In order to stay true to these strategies, sacrifices have to be made. Some would argue that life is too short and life is meant to be lived. This may be true; after all there are no guarantees in life.  If mortgage freedom is your plan, be prepared to do the following;

53% said they put off large unnecessary purchases

53% said they developed a budget

49% said they cut down on extra spending including entertainment and eating out.

38% skipped vacations.

“They made debt repayment their number one financial priority, skipping vacations or holding off on unnecessary purchases along the way to ensure they were on the path to achieving their long-term goal of becoming mortgage free.”

Mortgage freedom is attainable. One of the best places to start is by getting the right mortgage to begin with. One that offers the pre payment privileges and terms that you need. The best place to find this is with your mortgage agent or broker. They can survey the entire lending marketplace for you and find the right fit. Feel free to call me at 705-730-2400 for more information on how to begin your quest for mortgage freedom.

We have all heard that more changes are coming from the Government concerning CMHC.  If you are considering refinancing, purchasing or investing in a home, these changes affect you.  So who are these guys, and what are the changes now?

The Canadian Mortgage and Housing Corporation, CMHC is a crown corporation owned by the Government of Canada. It was originally established to assist veterans returning from WWII, to obtain housing. Now the primary purpose is to provide insurance for residential mortgage loans.

Even though the premium is paid by the borrower, CMHC does not insure the borrower in case of default, it insures the lender. CMHC insurance is required for all mortgages with a loan to value of more than 80%.

The amount of premium varies depending on the amount of the down payment you provide and other considerations such as if you are self employed. The premium can be anywhere between, 1% and 4.75% of the value of your home.

In 2004 CMHC was transferred to the Ministry of Labour, in a move that confused most and temporarily changed the name of the ministry to Ministry of Labour and Housing until 2006 when the name reverted back to the original.

The new rules will put CMHC closer to the Finance department by falling under the supervision of the Office of the Superintendant of Financial Institutions, (OSFI). 

OSFI is an independent agency of the Government of Canada reporting to the Ministry of Finance.  It is the regulator of all federally regulated deposit taking institutions including, banks, insurance companies and pension plans. It was originally created to “contribute to public confidence in the Canadian financial system.”

So now to the changes; over the past 4 years up to and including the “new rules”, this is the situation.

1)      The maximum amortization is now 30 years, down from 40

2)     Interest only mortgages have disappeared

3)     Rental properties are no longer covered so the minimum down payment required is 20%.

4)     Self employed people must now have a minimum down payment of 10%

5)     Refinancing can only be up to 85% of the value of the property

6)     Secured lines of credit are no longer covered so the maximum is now 80% of the home value. (OSFI is now wanting the maximum to drop to 65%)

So in short, the OSFI wants to cap the amount of equity you can access in your own home,  all in the effort to curb the amount of debt of the average Canadian. For some this is necessary as there is a large percentage of people who have no idea how to handle their money.

For others, investors, self employed and professionals who are out to improve their lot, it will soon be more expensive to access funds. This won’t stop the intrepid entrepreneur from pursing his dream however, it will only throw up one more hurdle.

Most people have never seen one.  Your credit report is a little known document that controls much of your financial destiny. A detailed snapshot of your last 7 years. The information in this report is critical to your ability to borrow money, and is a powerful piece of paper. So what exactly is in this document and why is it so critical?

In short, the answer is the credit report tells a lender about who you are, where you live and how you manage money. If you have a history of abusing creditors, chances are you won’t find many who want to be next.

Let me start by stating that if you are concerned about your privacy at this point, that ship left a long time ago. Once you have credit your life is a public record.  Everything you have done regarding money and a creditor of every sort is on this document.

The most important aspect of the credit report is your score.

This sacred number is commonly known as your “Beacon Score”. The Beacon score can range anywhere from 300 to 900. The average Canadian rests around the mid 700s. Nobody has a 900 beacon. There is also information on the reasons for your score. The score can be the first and last thing read by underwriters who will reject it outright just based on the number. For instance if your beacon score is under 600, you cannot qualify for CMHC insurance, therefore requiring 20% down.

Call me at 705.730.2400, I can help interpret your report.

The report gives detailed information, including the date the file was originally established, the last activity, your current and former addresses, any AKA’s, maiden names, your birth date and SIN number and employment.

The next section lists the number of inquiries for your credit information.

 An alert appears if 3 or more inquiries are within 90 days.

Too many inquiries may indicate previous refusals, creating more “red flags”. The next line reports the number of inquiries on your credit in the past 36 months as well. Lenders do not like to see large numbers here either.

There is a list is of inquiries for the past 12 months, including the source of the inquiry. This is important for a mortgage company who sees 2 other mortgage company inquiries on the list and may throw up another, you guessed it, “red flag”.

A summary of the report is provided and is helpful to someone who looks at them all day. Sometimes, if you have lived abroad, there will be an indication that a foreign bureau has reported information. There is notice of how much credit you have been given and how well you paid your bills. Here will be an account of your “R” ratings, more on them later.

Any bankruptcies, or collections, will be detailed next.  Of importance is the date of discharge, type of bankruptcy personal or business, if your spouse was involved, your liabilities, assets, and the trustee.

Secured loans, chattel mortgages, or registered liens where personal property is staked as collateral are listed in great detail and include the loan amount and maturity date.

Judgements are court orders against a debtor for payment of monies owing and are not something a lender wants to see.  Yup “red flag”.

Trades are companies you owe money to. Trade lines are lists of multiple companies. Here the details of the loan are listed. Terms, balances, past due amounts and if they are Open, Revolving, or Installment. Your “manner of payment” is ranked from “R0 -too new, approved, not used” to “R9- bad debt, placed for collection, skip”, (no run, red flag, red flag!)  

After all is exposed and your financial soul laid bare, the final section of the credit report is the Consumer Statement Section. This contains statements that you have put on file to explain discrepancies or other comments.

It is highly recommended that you pull your own credit report at least once a year to protect against fraud and inaccurate information damaging your rating. For more information please give me a call at 705.730.2400 or at least keep in touch and “like” my facebook page.

To the over 65% of Canadian mortgage holders who do not look for the best and most appropriate mortgage come renewal time, this article is not for you.  To the rest of you, please read on. There are things to consider before your mortgage renews. Of course rates are a consideration but you have no real control over that. Your credit score and history pretty much identifies the risk level you are. There are other more “you” focused things to consider.  Here is the top 10;

1) Have you Explored all your Options?

There are opportunities in the market place that may better meet your needs.

2) Are you Comfortable with your Payments?

This could be the time to make the payments easier to manage. Or on the other hand if you are able to, start paying down your principal and save on interest.

3) Do you need Cash Flow for Other Things?

Life happens and is to be lived. Things like paying for your child’s education, a career change, or a major purchase need to be considered in your refinancing.

4) Can you handle Fluctuating Rates?

Some homeowners can go with the flow when it comes to rate fluctuations. Others prefer to know exactly what their payments will be.

5) Will you be Selling Soon?

A mortgage with a shorter term with flexible terms will reduce or eliminate penalties for early payout of the loan.

6) Are you thinking about a Major Renovation?

These things can make your home more valuable. You may want a credit line to finance your project.

7) When do you want to be Mortgage Free?

Amortization is the amount of time to fully pay off your home. It’s everyone’s dream and it is attainable.

8) Can you use your Home Equity to fulfill Other Goals?

Investments or even another property and the interest is tax deductible.

9) Have your Insurance needs Changed?

Your situation may have changed over 5 years. Time to check your coverage to see if it still meets your obligations.

10) Are you getting the Best Rates?

Did you notice this one was last? It is still on the list however, and rates are important.  Lenders are very competitive and want your business. It’s your money after all, so you should be picky when it comes to paying interest.

As a mortgage specialist, my focus is on more than providing the best rates. It is also making sure you have the best overall mortgage that clearly meets your needs now and in the future. Give me a call, let’s talk.

So you are on the marathon adventure we like to call buying a house. With the right people and information, it can go smoothly, and be a less daunting.  Your mortgage agent will prepare you for these costs and in some cases; mortgages can be structured so that “out of pocket” expenses are minimized. The best and cheapest way is to budget for 2% of the value of the house and scrape and save it before you close.

“First time home buyers can get a large break by the government rebate of Land Transfer Tax so they have less to save”.

1) Land Transfer Tax

This is a tax imposed on all property transfers. It can range anywhere between, a half and 2 percent depending on the area and the value of your home.

2) Appraisal

The lender may request one to confirm market value. The cost is approximately $400, depending on the value and complexity of the property

3) Legal Fees

There is no amount of money that can compensate for a good, reliable real estate lawyer. They can make your life very easy. They will review purchase agreements, search property titles, complete documentation, and register your mortgage. They also can answer any questions you may have concerning the procedures and next steps.  Basic straight forward closings start at $500-$800, plus dispersements and added services.

4) Home Inspection

Although not mandatory, home inspections are highly recommended in all but new homes. Issues relating to the structure and systems of the house are looked at and reported.  This includes plumbing, electrical, heating, as well as recommended or necessary repairs.

5) Insurance

It’s a good idea to talk with your insurance agent prior to house hunting to get some good tips on what to watch out for. They will be able to, providing you narrow down your choices, give you a pretty good idea of what rates will be. Prior to closing the lender will require proof of fire and damage protection, with an insurance certificate, so it’s best to keep them in the loop. Costs for average house insurance depends on a number of circumstances, such as replacement value, level of liability and neighbourhood. Count on at least $500/yr.

 For all of your Mortgage Financing needs

6) New Construction Costs

The list of closing costs from your builder has nothing to do with financing but must be paid for up front or as progress advances. They can include upgrades, paving, landscaping, and HST. HST is usually included in the asking price but you need to make sure.

7) Prepaid costs

Sometimes a seller will prepay some utilities or taxes and will need to be reimbursed. It may add a few hundred dollars to your cost but on the good side will take care of your bills for a while.

Tax on Mortgage Insurance

This is usually rolled into your mortgage payments however PST may be required at closing.

9) Title Insurance

This is very important to protect you at the time of closing from fraud or problems with the title or survey. Cost of this insurance is $150-$300.

10) Moving Costs

It’s almost over and the deal is closing, but now you have to move. Remember the last minute costs, movers, moving van rentals, locks rekeyed, cleaning supplies, and don’t forget the food and beverages for helpers.

Now you’re home!

So you screwed up and got behind on a few bills, ignored calls from creditors and hung up on collection agencies. Although certainly not recommend practice for anyone, especially those looking to obtain a mortgage,  people who get themselves into trouble can get back on track. The two magic words are time and discipline.

“Having good credit means the “world is your oyster”, when seeking a mortgage”.

Bad credit will follow you around like a stray cat. It will affect your ability to borrow money for houses, cars and lines of credit, even some jobs.

Here is a list of 10 credit building tips that will help you build your credit;

1)      Pay off your Debts.

All of them! Regardless of whether or not you agree with the creditor’s charges. Anything on public record, starting with bankruptcy, liens, or judgements against you. They all must get taken care of. One R9 or I9 on your credit report is the “kiss of death”, to borrowers. Just one of these poisons will immediately put your credit application in jeopardy.

2)    Become Cheap

The best way to manage your money is to save as much as you can every time you can. Use the need vs. want method so as to not deprive yourself of vital things like food, clothing and shelter.

3)    Pay with Cash

Whenever possible pay with cash. If you get in the habit of only buying what you have the money for, you will get your spending under control.

4)    Get Rid of all Credit Cards

You can keep the oldest, ie the longest standing credit, only if it is in good shape with no late payments. Otherwise, if they are all maxed and out of control get rid of them. Don’t just cut up the cards, but write the card creditor to request the account be closed and a confirmation letter stating that it is closed. You will still have to pay off balances owing so you will need to determine a budget for paying down the cards.

5)    Order a Credit Report

There are 2 credit agencies who track credit, Equifax and Trans Union. Credit reports can be obtained by going to each agency website. The key is to check it over carefully making sure you fully understand everything that is on the report. If you do not agree with anything on the report it is your right to clear it up, either with the creditor or the credit agency.

“Call me to discuss your credit report and what it all means, I can help!”

 6)    Establish a Savings Account

Just a simple savings account at your bank. You don’t have to have a lot in the account either, small increments add up over time and it will serve as evidence that you can handle your daily life and money. It will also come in handy down the road when you need a down payment or can be used as collateral.

7)     Establish a Personal Contact

Your bank manager or loan officer can help if you meet them to discuss your personal situation and goals of re-establishing credit.

8)    Get a Secured Credit  Card

A secured credit card is a good way to rebuild bad credit. It is a regular credit card, and secured with a deposit, usually a minimum of $500.00. The deposit is your credit limit and as long as you maintain payments and don’t ever miss one , for any reason, your credit will begin to repair itself. Use the card carefully and only when you have the funds to back up a purchase, but use it.

You need to build your credit back up and prove that you are responsible with it and timely with payments.

9)    Do not Apply for any Credit Anywhere

To many inquiries on your credit report will affect your score by 10%. The more inquiries the more “red flags” on your report and the lower your score.  It is best to wait to apply for any type of credit until your score is in the 680s or better. A credit report with nothing to report for a year in a credit rebuilding period, is a very good sign to creditors.

10) Establish Trade Lines

Trade Lines are line items on your credit report and list people you owe money to. Initially they will be the bank that holds your secured credit card, and a secured GIC loan from them as well. Keep them both happy and you are on your way to creating a decent credit situation/

Building credit takes time and discipline. It will not happen overnight.  One slip up and months of hard work can go down the tubes. The key is to maintain communication with your creditors if you get in trouble. They are people like you and  may be able to help

 “The usual period of time to repair your credit to a level where you can actually qualify for a mortgage, with market rates and reasonable terms is about 2 years”.

You should have by then established good spending and saving habits and be well on your way to buying a new home.  Call me for more information, 705 730-2400, I can help.

So you have decided to either buy a new home, or refinance your existing mortgage. The next step in the process is to get all of the required documents organized. This is the only way a lender can determine exactly what kind of person you are and what kind of risk there is to loaning you money. Here is the list of documents you will need;

A Current Employment Letter

This must not be dated later than 30 days and be printed on company letterhead. It must state your employment parameters, time with the company and pay scale.

The most important item on your letter is contact information from the author.

Current Pay Stubs

Your 2 most recent stub showing the employer, salary information, pay period and YTD earnings.

Notice of Assessment (NOA)

Your last 2 years NOAs. This where most people have trouble locating their tax information. The NOA comes with your tax returns usually with a cheque attached.

If  you cannot locate the NOA you can call 1-800-959-8281 and get them mailed. They can also be ordered on-line but be warned this process takes time so the time to start is now

Property Assessment ( Refinancing)

This will allow lenders to determine the value of the property they are financing. ( Note: this is not a current market assessment of real estate sales in your neighbourhood.)

Home Insurance Documentation

Whether refinancing or purchasing, proof of fire insurance on the residence is mandatory.

Separation or Divorce Agreement

This is needed to ascertain your obligations and division of assets once an agreement is reached. This also includes support or alimony payments received and paid.

Contact Steve Clark a Northwood Mortgage Agent at 705-990 0388

Recent Mortgage Statement (Refinancing)

This allows easy transfer of funds, shows the balance at maturity and other details necessary to begin the refinancing process.

Survey Certificate

When purchasing a new home this is quite easy. With a resale you can obtain title insurance which protects all parties against title fraud during closing.

Purchase Agreement

A legible copy of the entire signed agreement, and a copy of the MLS listing is necessary. 

Down Payment History

A 90 day history of your down payment existing in your bank account or provide a reasonable explanation of how you obtained the funds. This will include legal papers or a gift letter from a relative or parent.

Down payments cannot come from borrowed money.

Your Solicitor

If you do not have a solicitor yet, we have a list of referrals.

Self Employed?

In addition to all of the above a self employed individual will need to provide his last 2 years T1 Generals and financial statements. A business licence proving 2 years in business may be also necessary.

Identification

A valid driver’s licence or passport is the most common. If you have neither we can discuss what acceptable forms of identification are.

 For further information on document requirements, please call me, I can help.

So many things are going on in our lives today, that knowing all there is about mortgages is just impossible. Before your mortgage matures you should have a brief meeting with me so we can discuss these important issues.

“Once you have considered all of your options, you can then make an educated decision regarding your mortgage and financial future. Call me for a free no obligation mortgage consultation 705-730-2400″

1)     Have you explored all of your options?

Once you receive your mortgage renewal notice, nothing is easier than just signing it back for another term. In some cases this makes sense, but in many cases your family or financial situation may have changed.

2)    Are you comfortable with your payments?

If you are feeling strapped by your mortgage payments, perhaps now is the time to reduce them to a more manageable level. Or if you are earning more why not increase your payments, by taking advantage of pre-payment options.

3)    Do you need cash flow for other things?

Priorities shift and cash flow needs shift too. Things like university tuition, career moves, major purchases, all call for money. Future plans need to be thought out.

4)    Can you handle fluctuating rates?

Some home owners are nervous about interest rate hikes, while others are comfortable going with the flow. Rates are tough to predict so it’s best to base your decision on your personal situation and not what you read or hear in the news.

“Over 65% of mortgage borrowers do not shop elsewhere when receiving a mortgage commitment because they didn’t think they could get a better deal”

5)    Are you planning to sell?

If so consider short term mortgages with flexible terms. You want to minimize penalties and fees if an opportunity to move arises.

6)    Are major renovations needed?

Projects like new kitchens or a finished basement make your home more valuable when it is time to sell. The right plan will allow you to have the money on hand.

7)    How soon do you want to be mortgage free?

If you plan to retire early or are planning an extended time away from work it may make sense to explore ways to pay down you mortgage sooner.

8)   It’s your money what other plans do you have?

Equity is money you have poured into the biggest purchase of your life, but it’s your money. There are numerous investment opportunities that are now available to you.

9)    Have your insurance needs changed?

If your financial situation has changed maybe it’s time to review your insurance level to ensure you have enough to cover your obligations.

10)Are you getting the best rates and terms?

In this competitive mortgage environment, mortgage lenders want your business and compete through the mortgage broker network. They offer terrific rates, terms and incentives and the broker passes them on to you. 

Working with me will not only save you money but time too. I do the shopping to get the mortgage that’s right for you. Call me now for a free no obligation mortgage consultation 705-730-2400.

Mortgage Lenders are to be Forced to Disclose Pre-Payment Penalties

Almost exactly 2 years after promising to improve mortgage prepayment penalty disclosure by lenders and banks, the FCAC, (Financial Consumer Agency of Canada), has developed a new mortgage “code”. This code will require all mortgage lenders to provide more information on the calculations that go into penalties. They will also be required to explain the difference between mortgage products including ways to pay off mortgages faster.

Consumer groups have been after these changes for quite some time and have long charged banks and lenders with;

• Obstructing penalty disclosure with legalese and vagueness.
• Failure to provide an understandable formula for calculating pre-payment charges.
• Failure to provide easy access to the inputs that make up the formulas, i.e. primary rate at orgination, comparative rates, etc, that must be plugged into make the formula work.

The FCAC has registered an increase in consumer complaints about pre-payment penalties, especially IRD charges, and a lack of disclosure to clients. They have stated that lenders/banks, “hinder the consumers ability to decide mortgage payment options.”

Among the new rules lenders must provide;

1)      The method of calculation of penalties.

2)      If a specific case is complicated, provide a simplified method.

3)      Provide access and a description of all inputs, (primary rate at origin, future value, outstanding balance, applicable interest rate, bond yields.)

4)      Describe how to obtain the information.

5)      A worksheet template on their websites.

Although not required until November 2012, there is a specific list of requirements under the code each lender must follow;

• They must describe clearly a borrowers pre-payment privileges.
• They must illustrate the dollar value of this option.
• Explain the factors that may cause the penalties to change.
• Provide specific information needed by the borrower for calculating his/her own penalties.
• List of additional fees.
• Contact information of a knowledgeable person in the area of pre-payment calculations.
• Provide a written statement of all pre-payment penalties with full description of both the formula used and the time frame of the statement.
• They must divulge what triggers a pre-payment penalty, how to avoid penalties and how to pay down a mortgage quicker without penalties.

Perhaps the most welcome requirement of mortgage lenders is the provision to post a mortgage pre-payment calculator on their public website to help consumers determine a reasonable estimate of penalties.

“It’s not often a government agency makes a promise and keeps it as well as the FCAC has done here. We applaud their effort and look forward to the implementation of these changes.”