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It does matter how your mortgage gets registered – collateral or conventional

Many people are unaware that there are two basic types of mortgages: conventional and collateral. With a conventional mortgage, the amount you’re borrowing (property value minus down payment) is the amount that’s registered. But with a collateral mortgage, the amount that’s registered is 100-125% of the property value, and the lender has both a promissory note AND a lien registered against the property for the total registered amount. Most credit unions such as Vancity register their mortgages collateral while TD Canada Trust and ING Direct switched to collateral mortgages in 2010.

The advantage of a collateral mortgage is easy access to credit. Since the mortgage is already registered for a larger amount than you need to buy the house, you can access additional funds in the future without any extra steps or legal fees.

But there are also several downsides of collateral mortgages:

– Free transfers or switches to a new lender when your term is up aren’t usually available. Most other lenders don’t like the fine print and restrictions of collateral mortgages and won’t accept them unless they’re a refinance, which costs you legal and possible appraisal fees.

– You could end up paying a higher interest rate at renewal. If your collateral mortgage makes it difficult to switch lenders at renewal, you don’t have the ability to shop around for the best rate. That could end up costing you up to 1% more on your mortgage rate.

Obviously, it’s very important for you to know up front whether you’re getting into a collateral mortgage or a conventional mortgage. Unfortunately, many people don’t realize they have a collateral mortgage until it comes time to renew and they don’t have the flexibility they need. We would be more than happy to help make sure this doesn’t happen to you!

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What it means to you with the increase in mortgage premiums from CMHC?

On Friday, CMHC (Canadian Mortgage & Housing Corporation) announced that it will be increasing its mortgage insurance premiums for homeowners and 1-4 unit rental properties premium effective May 1, 2014.

Homebuyers is Canada are required by law to purchase mortgage insurance when they put less than 20% down payment on the purchase price of the home. The homeowner is required to pay for the insurance in case they default on their mortgage and it is a protection for the lender. The increase to the premium will be an average of about 15% more to insure mortgages. This premium is added to the mortgage amount and it is paid throughout the life of the mortgage (amortization period). The increase in premium will affect any purchases that occur on or after May 1, 2014.

There majority of the insurance is provided by CMHC and there are two private insurers to include Genworth Financial and Canada Guarantee. Genworth Financial followed suit by increasing its’ premiums on Friday and most likely Canada Guarantee will do the same.

Prior to the announcement, the premium ranged between 0.5% to 2.75%. As of May 1st, the premiums will range from 0.6% to 3.15%. The premiums charged depend on the amount of the down payment. With a 5% down payment the new premium will be 3.15% and 2.40% for a 10% down payment.

For example, prior to the announcement with a $400,000 home purchase and a 5% down payment the insurance premium would be $10,450. After May 1st, the premium would increase by $1,520 which would translate to $7.29 more per month with a 25 year amortization and a 5 year, fixed rate of 3.09%.

To read more about the CMHC announcement 

As always, we would be pleased to answer any questions you might have.


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BC First Time Home Buyers are saving some money!

The Province of BC announced that effective today it will increase the exemption levels for the Property Transfer Tax (PTT) to $475,000.

The previous exemption was up to $425,000 with a partial exemption levels on purchases between $425,000 – $475,000.

With this new changes, it means a full exception up to $475,000 and a partial exemption between $475,000 – $500,000.

The Property Transfer Tax is calculated as follows: 1% on the first $200,000 and 2% on the balance on the purchase price.

Previously if a first time home buyer was purchasing a home of $475,000, they would have to pay $7,500 for the property transfer tax.  This is a cost that can’t be added to the mortgage amount and it would have to be additional money the purchasers had to come up with besides the down payment.

This is of great step in assisting First Time Home Buyers to purchase their first home.


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Your cellphone account can impact whether you’ll be approved for a mortgage.

Equifax and TransUnion are the two main credit reporting agencies in Canada. They collect all the data on your loans, lines of credit and credit cards to create your credit report and calculate your credit score. This information is then used by lenders—including mortgage lenders—to determine whether you’re a good credit risk.

Recently, both credit reporting agencies started including cellphone accounts in their credit reports. This means if you make a cellphone payment after the due date, it appears on your credit report and reflects negatively on your borrowing profile. Even worse, if you allow your cellphone account to go delinquent and it’s sent to a collection agency, not only does this appear on your report, it can also reduce your credit score. Mortgage lenders use this information to make underwriting decisions. Therefore, having a negative record with your cellphone provider can actually impact your likelihood of being approved for a loan and increase the interest rate you’ll pay.

If you’ve recently walked away from a cellphone contract, it’s a good idea to get the company to put in writing that the contract has been fulfilled and is now closed. This can help prevent any damage to your credit rating. We are always pleased to help if you want more information on how to preserve or improve your credit rating.


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There are stricter debt ratio standards on the way as CMHC tightens mortgage rules.

There are stricter debt ratio standards on the way as CMHC tightens mortgage rules.

We are committed to keep you informed so you can take advantage of current guidelines. If you are looking at purchasing, refinancing or investing before the new guidelines come into effect at the end of this year, give us a call so we can find the best options for you.

When CMHC tightened mortgage rules last year, among the changes were stricter debt ratios and income confirmations. For typical borrowers, these are key factors in determining whether or not you’ll get a mortgage. If you’re close to the line on debt and income, last year’s changes have made it more difficult for you to qualify. And unfortunately, things are about to get even more difficult!

CMHC has issued new guidelines for calculating debt ratios and confirming income documents. While most lenders have already been following these rules, CMHC is now closing the “loopholes” that allowed some lenders to offer easier approval for borrowers with tight debt ratios. Here are some of the rules that have been clarified:

  • If you have variable income from things like bonuses, tips and investment income, lenders must use an amount not exceeding the average income of the past two years.
  • If you own other non-owner-occupied rental properties, the principal, interest, property taxes and heat on those properties must be deducted from gross rent revenue or included in “other debt obligations” when Total Debt Service ratio is calculated.
  • For unsecured credit lines and credit cards, no less than 3% of the outstanding balance must be included in monthly debt payments.
  • For secured lines of credit, lenders must factor in “the equivalent” of a payment that’s based on “the outstanding balance amortized over 25 years.”
  • For heating costs, lenders must obtain the actual heating cost records of a property or use a set heating cost formula. This can double or triple the cost factored into debt ratios on larger properties, and reduce it on smaller ones.

Since the new rules take effect on December 31, 2013, it’s important to talk to contact us today  to find the best options with the current guidelines. We still have access to a select group of lenders who may be able to provide the mortgage approval you need. For more information, call us today at 778.893.0525!


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Take advantage of the first-time new home buyers’ bonus up to $10,000

If you are a first-time new home buyer, you still have time to qualify for the bonus up to $10,000.  You must occupy or take possesion of the home by April 1, 2013.

Requirements to Qualify for the Bonus

ELIGIBLE FIRST-TIME NEW HOME BUYER

You will qualify as a first-time new home buyer if:

  • You purchase or build an eligible new home located in B.C.;
  • You, or for couples, you and your spouse or common law partner, have never previously owned a primary residence;
  • You file a 2011 B.C. resident personal income tax return, or if you move to B.C. after December 31, 2011, you file a 2012 B.C. resident personal income tax return (you will not be eligible for the bonus if you move to B.C. after December 31, 2012);
  • You are eligible for the B.C. HST New Housing Rebate; and
  • You intend to live in the home as your primary residence.

ELIGIBLE NEW HOME

An eligible new home includes new homes (i.e., newly constructed and substantially renovated homes) that are purchased from a builder and that are owner-built. The bonus will be available in respect of new homes purchased from a builder where:

  • A written agreement of purchase and sale is entered into on or after February 21, 2012;
  • HST is payable on the home (e.g., HST will generally be payable if ownership or possession of the home transfers before April 1, 2013 – see further details below); and
  • No one else has claimed a bonus in respect of the home.

The bonus will be available in respect of owner-built homes where:

  • A written agreement of purchase and sale in respect of the land and building is entered into on or after February 21, 2012;
  • Construction of the home is complete, or the home is occupied, before April 1, 2013; and
  • No one else has claimed a bonus in respect of the home.

A substantially renovated home is one where all or substantially all of the interior of a building has been removed or replaced. Generally, 90% or more of the interior of the house must be renovated to qualify as a substantially renovated home (90% test).

Amount of the Bonus

MAXIMUM AMOUNT

The bonus is equal to 5% of the purchase price of the home (or in the case of owner-built homes, 5% of the land and construction costs subject to HST) to a maximum of $10,000.

PHASE-OUT FOR HIGHER INCOME EARNERS

The bonus will be reduced based on an individual’s/couple’s net income (line 236 of your income tax return) using the following formula:

  • For single individuals, the bonus is reduced by 20 cents for every dollar in net income over $150,000 (bonus is reduced to zero at $200,000 net income).
  • For couples, the bonus is reduced by 10 cents for every dollar in family net income over $150,000 (bonus is reduced to zero at $250,000 family net income).

Additional Information

APPLICATION PROCESS

Individuals must apply for the bonus through the B.C. government. Individuals can apply once application forms have been posted on the B.C. Ministry of Finance website later this year. Applicants will be required to submit documentation demonstrating eligibility for the bonus.

ELIGIBLE NEW HOME

The bonus is available in respect of new homes (i.e., newly constructed and substantially renovated homes) where HST is payable. HST will generally be payable on homes purchased from a builder where ownership or possession transfer before April 1, 2013. Potential buyers should consult with the builder to determine if the home will be subject to the HST.

For owner-built homes, the bonus will be based on land and construction costs subject to the HST.

Eligible new homes will include:

  • Detached Houses, semi-detached houses, duplexes and townhouses,
  • Residential condominium units,
  • Mobile homes and floating homes, and
  • Residential units in a cooperative housing corporation.

Please let us know if you have any questions.

INCOME TAXATION BRANCH
Ministry of Finance
Province of British Columbia
Telephone: (250) 387-3332 or 1 (877) 387-3332
Email: ITBTaxQuestions@gov.bc.ca