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What is Shadow Lending? The key things you need to know.

What is Shadow Lending? The Key Things You Need to Know Like “shadow flipping,” the term “shadow lending” gets a lot of negative press. What it means and when it can be helpful. As seen in REW.ca

Over the last few years, the media has done a great job of telling wild stories about how so-called shadow lenders are seducing Canadians with bad loans, only to foreclose and steal their houses. The term “shadow” evokes all the right imagery: the back-alley deal, thugs with pipe wrenches, extortion and envelopes full of money.

The expression “shadow lending” (or “shadow banking”) is actually quite vague. It is a catch-all phrase that usually describes any practice of private lending done outside the walls of a traditional bank. So, if your parents loaned you $50,000 for a down payment, they are shadow lenders.

The Bank of Canada states,bank Shadow banking refers to a set of activities, outside the formal banking system, that carry out similar functions to those performed by banks.” It goes on to say that “while the term ‘shadow banking’ tends to suggest something secretive or illicit… on the whole, shadow banking serves a useful purpose.”

And one such useful purpose is increasing the choice of mortgage products for consumers.

Having more choices is one of the major benefits of working with a mortgage broker. As it becomes more difficult to secure traditional mortgage financing, due to government intervention, the alternative lending space is stepping up and creating solutions for clients who would otherwise be turned away from homeownership.

In other words, while the banks continue to narrow their qualifications, alternative lenders (private mortgage lenders) are filling the void and creating products priced based on risk. Sure, these products might come at a higher rate than a traditional mortgage. But ask yourself, if the bank turned you down for a mortgage for whatever reason, wouldn’t you want to at least be able to consider more options?

Here’s when getting a private mortgage makes sense:Private-Mortgage-min

  • You are purchasing raw land or a unique property that traditional lenders won’t touch because it’s outside their lending criteria;
  • You are looking at buying a property to flip or a home that is in major disrepair, and need the funds to do the renovations;
  • You have been recently laid off or have lost your job for another reason, and you need money to tide you over while you are looking for a new job;
  • You need access to equity in your home and the penalty to break your current mortgage is too high;
  • You have credit issues such as a consumer proposal or bankruptcy and it is preventing you from getting a mortgage for the full amount that you need from a traditional lender and you need a “top up”;
  • You need to consolidate high interest debt, and due to bruised credit, you have been turned down by traditional lenders;
  • A divorce, illness or some other life-changing event has had a major negative impact on your credit rating or low income, and you need mortgage financing until you get back on your feet;
  • You need to take out equity from your property to get back into good standing with an existing mortgage that is in arrears, power of sale or foreclosure;
  • You are interested in purchasing a new home, you have a sizeable down payment, ideally at least 15% of the property value;
  • You have an existing property with a small mortgage that leaves you with a fair amount of equity in your property. Ideally you want the total of your existing mortgages and the new one to be at least 85 per cent of your property value or less.

Most private lenders will not provide loans that go beyond a loan to value (LTV) ratio of 75 to 85 per cent.canadalend_faq_btn

The following is a list of some of the questions you need to ask when dealing with a private mortgage lender.

Is there a loan document? Just like banks, private mortgage lenders should provide a loan document that details the terms and conditions that are listed below. You will know exactly what you will be committing yourself to by seeking the legal advice of a lawyer to represent you.

What are the term(s)? Typically, private lender mortgages only want short-term mortgages. Therefore, you should find out how long the term it is for. Normally they are from one to two years. The important thing to consider is that at the end of term you will be able to get refinanced. If you feel that your situation may not improve by the end of the term you should look to negotiate a longer term.

What is the interest rate? The rate is important as it forms the basis of your monthly payments. You might also consider what the renewal interest rate would be if you need to renew with a private lender, and you should get this rate beforehand. This is critical if at the end of the initial term, you are still challenged with refinancing options.

What is the amortization period, or is it interest payments only? The amortization period is how long it will take you to pay off the mortgage. Most private lenders will require you to make interest payments only or might have a longer amortization period (e.g. 35 to 40 years) in order to keep the monthly payments lower.

Is there a penalty for paying off the mortgage earlier? There are private lenders that offer open-term mortgages, which means you can pay off the mortgage at any time during the term without paying a penalty. While other offer closed mortgages and if payed of earlier, you would typically have to pay a three-month penalty interest.

What happens in the event of default? One of the most common defaults is missing a mortgage payment. Typically, mortgage lenders need to advise you that you are in default and need to give you a certain period of time to take care of the default. Like traditional lenders, if you do not take care of the default, it can lead to foreclosure.

Is there a cost-of-borrowing disclosure statement? Along with the loan document, there will also be a cost-of-borrowing disclosure statement, which means the lender will need to provide you will full disclosure on the costs of borrowing.

Will the private lender be registered on the title of your property? Just like your traditional lender, the private lender will register their interest on the title of the property.

Are the execution of the documents signed at your lawyer’s office? Yes, you will need to have your own lawyer and the private lender will have their own lawyer as well. Be advised that, you will be responsible to cover the cost of both yours and their lawyers’.

So, how do you protect yourself from falling victim to shadow lending (if, in fact, you can “fall victim” at all)? Actually quite easily. Don’t buy into the media hype!

After that, if you don’t understand the terms of a mortgage, ask questions. And, if you still don’t understand, ask more questions. At that point, if you still don’t understand, seek legal counsel. And if you don’t like the terms of the mortgage presented to you, simply don’t sign. Ultimately, no one is forcing you to sign mortgage documents.

At the end of the day, you should always seek professional advice and make informed decisions. It’s your money and your property, you have every right to spend it, or not, and sell it, or not, how you see fit.

 

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Home Renovations: Reality Television vs. Actual Reality

Millions love watching home reno shows – but how easy is it to do (and fund) such projects in real life? As seen in REW.ca

Home renovation shows are very popular today and are one of our favorite shows to watch. These shows are not only entertaining but tend to lead you to think how easy and quick it is to renovate your home. And we know that viewers enjoy the shows more when they are filmed in Vancouver as you recognize certain landmarks or streets, which you see often when you watch shows like Love it or List it Vancouver and Game of Homes. However, television shows are unrealistic, highly edited and can mislead people on the renovation process.

It’s true that we have become more knowledgeable about design and we definitely want the latest interior finishes and stylish open interiors that we see on television shows. But homeowners really need to understand all the less entertaining but very important factors involved in a home.

The Financing86800398 (2)

Most home renovations shows do not talk about the financing aspect of the renovation – that’s not considered “sexy” enough for TV. But it is one of the most important aspects of your project – how are you going to pay for it?

Before you commit to a renovation project, meet with a mortgage expert to help you assess your financial situation. Every person’s financial needs and options are unique.

When asked, most people say they are financing their renovation with a line of credit. While you are only required to make payments on the interest only, many people are under the impression that they can manage paying the interest and go ahead with the renovations. The danger with using this type of financing is that eventually the principal has to be paid and you end up paying huge interest costs.

A home equity line of credit (HELOC) will give you a lower interest rate… if you currently have one in place. If you don’t, you will need to have at least 35 per cent of equity in your home to qualify for one (based on the current mortgage rules by the Bank Act).

Currently, you can refinance up to 80 per cent of the value of your home for a mortgage based on the appraised value. With today’s historical low interest rates, you will end up paying a higher interest rate on a line of credit or HELOC, and you are unlikely to pay down the principal compared to a lower interest rate with a closed mortgage where you pay principal and interest, saving you thousands in interest.

Another thing to consider if you are unable to pay off the debt quickly is that you might be better off to refinance your mortgage. It might be more beneficial to get a one- to five-year locked mortgage below three per cent by saving interest up front and using your lender’s pre-payment privileges. If you currently have a fixed-rate mortgage, find out what would be your penalty for paying it out early, it might still be worth it to refinance.

The BudgetBudget-Cost

On television, the designer often has some budget like $80,000 to renovate an entire main floor including the kitchen and finish the downstairs basement. The question is – are those numbers realistic? The reality is that we, as viewers, are not aware what has been factored into those numbers by the television producers such as design fees, permits, labour, material costs, and promotional giveaways, etc.

In order to have a realistic budget for your renovation, do research before you commit. Some people get a specific number set in their mind without knowing what is involved in the total scope of the renovation. It is critical in this step to work with a professional renovator as it will reduce surprises. Homeowners need to take responsibility for the renovator they select and for doing their homework.

A great source for proven renovators builders is an association such as The Greater Vancouver Home Builder’s Association (www.gvhba.org). As a general rule, if the price is too good to be true, it probably is. So don’t automatically go for the lowest price.

A professional renovator will work with you to create a detailed budget and timeline for your project so you know what to expect. Once you start selecting materials it is a good idea to take the budget with you to ensure you stay within your budget. There are times that homeowners run out of money midway through the project because they made too many changes along the way or ended up selecting more expensive materials.

The Tim3d-character-and-question-mark-eline

On television, renovations are completed withi
n a few short weeks. The homeowners come in and are mesmerized by the transformation. The reality is that sometimes it can take up to eight weeks just for the kitchen cabinets to get built.

Before you start your renovation, prepare a timeline with a renovator so you know what to expect. By doing this, you will have an exact idea how long it will take to do the tasks and therefore plan accordingly.

Also, it’s important to remember that quality, professional renovators aren’t necessarily available right away. Some are booked months in advance, depending on the project. In order to stay on track, materials have to be bought ahead of time and certain items could be out of stock. It might take additional time to get them or in some cases replace them. It is important to remember that even fast projects still take a few months, while bigger projects can take up to a year to complete. Therefore, you need to be prepared.

consultation-photo

The Plans

On most of the renovation shows you have the interior designer come into the home with their assistants and an iPad and start moving walls and design the new space within minutes.

In real life, renovations can be boring because every step of the process is well planned. When it comes to structural changes in the home, such as moving walls, doors, windows or adding additions, a structural engineer may be required in order to obtain a permits. A renovator needs to plan for these type of engineering costs and time delays in order to complete the project.

So when you do your own renovations, it may not have all the excitement that you have seen on the television shows – but we do know this. As long as you take into consideration the above factors, you will be happy with the end result. One that – despite the time, effort and money involved – you will be proud to come home to.


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Ask the Expert: Should I prepare myself for higher interest rates?

Rates may be at historic lows however, with big banks raising fixed rates and reducing variable-rate discounts, you need to be ready to pay more. As seen in REW.ca

Q: I’m easily able to make payments on my mortgage at the moment as my rate is so low. I saw that the Bank of Canada didn’t cut its overnight rate last week, and that some banks are actually raising interest rates. Should I be prepared for higher interest rates, and if so, what is your advice?

A: Interest rates are still at historical lows, and we keep hearing for years that interest rates are going to rise. If anything, interest rates have dropped.

The Bank of Canada was considering dropping the overnight rate. However, on Wednesday’s announcement they have decided to maintain the overnight rate at 0.5 per cent. Since the Canadian dollar has already fallen sharply and a rate cut could have imprudently triggered a currency rout. There is a great deal of concern about household debt, and another rate cut would add to the risk by encouraging excessive borrowing.

So does this mean that we should stop thinking about rising interest rates? Not at all. It is important to be proactive and prepare yourself for higher interest rates.

The following are some tips that can help you.

  1. income-reportPay down your mortgage faster

To ensure that you don’t over-leverage yourself when interest rates do eventually increase, start by making larger or more frequent payments and make lump-sum prepayments when possible towards your mortgage. This will help you by lowering your principal so you will pay interest on a smaller amount in the future.

  • Consider making a lump-sum payment. Most lenders allow you to pay up to 10 to 20 per cent of your mortgage without a penalty annually. The prepayment amount is applied directly to the principal balance, which will help you save money.
  • Changing your payment frequency is a great way to pay off your mortgage faster. While most people might not have extra money to put a lump-sum payment every year, you can save money by paying the same amount per month and just simply splitting your mortgage payments throughout the month to semi-annual, bi-weekly or weekly payments.

Below is a chart showing how paying more often pays off.

table pay off mortgage faster

(Calculations based on a mortgage amount of $450,142 with a five-year fixed rate of 2.64% and a 25-year amortization.)
  1. Pay down other debt

pay-off-credit-cardsIf you are only making minimum payments on your credit card, it would be a good idea to start paying more. If you are unable to come up with the money to increase your payments, start a budget or see where you can tighten your existing one, cut spending and start paying down your credit card debt with the money you save.

If you are living beyond your means, it won’t get any easier later on. It is better to become proactive, instead of getting in a tighter situation later, especially when interest rates start rising. If you are looking at buying a home, calculate what the payments will be with a higher interest rate and see if you would be comfortable making those payments in the long run. If not, purchase a property of lesser value.

  1. Refinance

If your mortgage is coming up for renewal in the next two to three years, it is worth checking out if you are eligible to refinance now and take advantage of the lower interest rates. Also, if you have equity in your home, this is a great opportunity to pay off some debts and increase your monthly cash flow. Even if you have to pay a penalty for refinancing prior to the end of the term, it could help you save money in the long run. Talk to your mortgage expert to explore the options and see if it makes sense.

  1. Have a contingency fund

imagesQ8W8929HIf you are concerned about higher interest rates when your mortgage comes up for renewal, start working on it now. It’s a good idea to start a contingency fund that can be used to cover the increase in mortgage payments or use that fund to make a lump sum payment on your mortgage. If you are on a variable mortgage, figure out what would be your mortgage payments if you had a fixed rate and put that extra money aside. By making small changes in your daily spending you can save more money in the long run.

  1. Seek professional advice

Having a close relationship and working with your mortgage expert 83834073frequently can help offset some of the stress and confusion. Your mortgage expert can help educate you in areas you might not be familiar with and can help you be prepared for when interest rates do start increasing.

If you are worried if you will be able to afford your home when interest rates increase or if you want to find out how you can save money, give me a call at 778.893.0525 to speak about your options.

 


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How to Finance Renovations on your New Home

If you need to renovate your new home, there are innovative mortgage programs that can help you out. As seen in REW.ca

With house prices continually rising, sometimes the only home you can afford is a home that needs a bit of updating or needs renovations. But traditional financing can sometimes make these types of home unaffordable. That’s because you first have to come up with a down payment to qualify for a mortgage for the purchase price. Then as soon as you take possession, you have to qualify for some kind of home improvement loan. Not only is it difficult to qualify for two separate loans at the same time, it also makes buying more expensive.

Fapartment-renovations-17899498ortunately, there are innovative programs from mortgage insurers such
as CMHC and Genworth that are designed for just this purpose. These programs helps qualified homebuyers make their new home just right for them, by making customized improvements, immediately after taking possession of their new home. All this is done with one manageable mortgage and with as little as 5 per cent down.

The improvements to be made under such programs can’t include structural changes to the home. Some of the improvements allowed include:

  • Updating or renovating kitchen
  • Updating or renovating bathrooms
  • New flooring
  • New paint
  • Finishing or renovating basement
  • New patio or deck
  • New energy windows/doors
  • Addition of garage, etc.

Some of the parameters of the program include:

  • As low as 5 per cent down payment (conditions apply)
  • Depending on the insurer, you can go up to 20 per cent of the purchase price with a maximum of $40,000 or 10 per cent of the as-improved value
  • Owner-occupied properties only
  • Down payment is based on the as-improved value
  • Other conditions apply

For example, the CMHC Improvements program lets qualified buyers borrow up to 10 per cent of the post-renovation value of a house and use that money to cover the cost of renovations.

Let’s say the house’s purchase price is $400,000 and the renovations you have in mind would increase its value by $40,000. That means the post-renovation value would be $440,000 so you could borrow $40,000 to cover the renovations.

Let’s See the Monthly Savings:

Straight mortgage with $40,000 line of credit:

  • Purchase price $400,000
  • Down payment $20,000
  • Improvements using line of credit $40,000
  • $1,773.51* mortgage + line of credit $316.67** per month
  • Total monthly payments: $2,090.17*

Purchase Plus Improvements:

  • Purchase price $440,000
  • Down payment $22,000
  • Total monthly payments $1,857.52*
  • Improved cash flow and lower interest costs
  • Living in dream home

renovations_page

To qualify, you have to provide a quote from a contractor or suppliers at the time of submitting the application to the lender. Once insurer (CMHC or Genworth) and your lender approve the renovation amount, it’s then added to your mortgage loan. However, you don’t receive the funds until the renovation is complete and has been appraised or inspected. This usually means you will need a short-term line of credit or come up with the funds ahead of time.

The best option is to work with a mortgage expert, such as myself, who has partnered with renovators and suppliers to make this program even more attractive. The renovator and suppliers will take care of the financing for you until the project is finished. Once the work is complete the solicitor will pay them directly the cost of the renovation. You will be rest assured that there will be no cost overruns (unless due to unforeseen circumstances), hidden costs and that the job will be completed on time and on budget.

The good news is that Alisa Aragon from Your Mortgage Solutions Group has partnered with renovators and suppliers to make this program even more attractive. The renovator and suppliers will take care of the financing for you until the project is finished. Once the work is complete the solicitor will pay them directly the cost of the renovation. You will be rest assured that there will be no cost overruns (unless due to unforeseen circumstances), hidden costs and that the job will be completed on time and on budget.

To see whether this type of program can help you affordably improve your new house into the home of your dreams, talk to a mortgage expert and we will provide you with a no-charge analysis of your needs and financial situation.

* Mortgage based on 5 per cent down payment with a fixed rate of 2.59 per cent, closed for five years and 25-year amortization
** Line of credit based on interest rate of 9.25 per cent interest payments only


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What If I Don’t Have the Full Down Payment?

Raising a down payment can be the trickiest part of buying in Vancouver’s hot market – but some programs may help. As seen in REW.ca

Q: I really want to put in an offer on a condo, but I haven’t raised the full down payment amount yet? Do I have any options?

A: The minimum down payment required is 5 per cent of the purchase price of the home you are buying – if you are employed. For those who are self-employed, it will depend if you are qualifying based on what you are declaring on your income tax then it will be 5 per cent, and at least 10 per cent if you are self-employed and qualifying with an “estimated” gross income instead of the income showing on your tax return. And if you want to avoid paying mortgage default insurance, you need to have at least a 20 per cent down payment.

However, there are programs available that enable you to use other forms of down payment when you don’t have the full down payment.

  • RRSPs: If you are a first-time home buyer,income-report you can use up to $25,000 from your RRSP without paying any personal taxes. However, you will have to repay any amount withdrawn from your RRSP for down payment of a home purchase.
  • Gift from a family member: You can get money gifted from a parent, child or sibling to go towards the down payment. The lender will ask that the person that is giving you the gift signs a letter stating that the funds are a gift and are not to be repaid.
  • Borrowed down payment: You can borrow from a line of credit, get a loan or use your credit cards to complete your down payment. However, in order to qualify, you still have to be within the Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS ratio should be no more than 44 per cent of your gross monthly income.

Once you have raised the full down payment and made your offer, you will still need solid advice on which mortgage is best for you. By working with a mortgage expert, you have access to multiple lenders including banks, credit unions and other lenders that only work with brokers, which will ensure that they can find the best mortgage for your individual needs.


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Fraud Alert #2: How Title Fraud Works – and How to Protect Against It

In the second of a two-part series on fraud, we explain real estate title fraud and how to protect your home. As seen in REW.ca

Last time, we discussed mortgage fraud and “straw buyer” schemes and the red flags that come up when they happen. This time we are taking a look at an even more insidious type of fraud, where the red flags are hard or even impossible to spot until it’s too late.

identity theft 2Title Fraud

When you purchase a home, you purchase the title to the property. Your solicitor registers you as the owner of the property in the provincial land title office.

Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.

This occurs when your personal information is collected and used by someone identifying themselves as you. There are several ways criminals can steal your identity without your knowledge, which includes:

  • dumpster diving;
  • mail box theft;
  • phishing; and
  • computer hacking.

Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is often the case with mortgage fraud.

Here’s what happens with title fraud. A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.

The following are widentity-theftays you can protect yourself from identity theft:

  • Ensure you keep personal information confidential when on the internet or phone until you know who are dealing with, how it will be used and if it will be shared with anyone.
  • Only carry minimal information and identification in your wallet, don’t have your social insurance card with you.
  • Check your credit report regularly. You can get them free when you request them from the Equifax and Transunion when they mail them to your home. If you notice anything suspicious, contact the credit bureau right away.
  • Check your financial, bank and credit card statements regularly for any inconsistencies and unknown charges.
  • Consider obtaining a title insurance policy, as title insurance protects against many title risks associated with real estate transactions.
  • Check your mailbox for mail on regularly, if not every day.
  • Shred and destroy any financial and personal identification documents, as well as any unsolicited credit card applications rather than just simply throwing them away.
  • If you don’t receive your bills or other mail, follow up with your creditors.
  • If you receive credit cards that you didn’t apply for or if you did apply for them and didn’t receive them.
  • Contact your mortgage lender first if you are having difficulty making your mortgage payments.

ACE_Identity-Theft-Prevention2014_webThe following are ways to protect yourself from title fraud when purchasing or refinancing a home:

  • Make sure you work with a licensed real estate agent who is familiar with the area you are interested in buying. Select to work with someone that can provide trusted referrals and check on them.
  • Check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable.
  • Always view the property you are purchasing in person – don’t buy without seeing it first.
  • Beware of a real estate agent or mortgage broker who has a financial interest in the transaction.
  • Ask for a copy of the land title or go to a registry office and request a historical title search.
  • In the offer to purchase, include the option to have the property inspected and appraised.
  • When giving a deposit when purchasing a property ensure the funds will be held “in trust” with a solicitor or a real estate agency and not directly with the seller.
  • Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab.
  • Ask to see receipts and permits for recent renovations.
  • Consider the purchase of title insurance.
  • Review and make sure you are comfortable with the terms and conditions with the mortgage commitment letter or approval.
  • Review the “cost of borrowing disclosure statement” and be aware of any additional fees or charges. Ask questions if you are not sure.
  • Know and understand what you are signing. If you have questions, ask. If you are not comfortable or something is not right, do not sign the documents.
  • You might want to consider using your own solicitor for legal advice if you are asked to use the same lawyer as the seller.


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How this Summer’s New Mortgage Rules Will Affect You

Three significant changes to the CMHC’s mortgage rules will affect qualifying interest rates, down payments and income verification. As seen in REW.ca

The mortgage industry has seen many changes on lending guidelines in the past five years that has made it tougher for prospective homebuyers to qualify. This summer, there are new mortgage rules heading our way.

The changes are intended to continue with the industry’s recent focus on risk management, as per the Office of the Superintendent of Financial Institutions (OSFI) B-21 guidelines. OSFI is an independent agency of the Government of Canada that has a mandate to contribute to the safety and soundness of the Canadian financial system. It is responsible for supervising and regulating federally registered banks, insurers, trusts and mortgage companies, in addition to private pension plans subject to federal oversight.

Now the CMHC (Canadian Mortgage and Housing Corporation) is implementing three policy changes in accordance to OSFI’s B-21 guidelines. These changes will make it harder to get low-ratio insured variable-rate mortgages, mortgages for the self-employed and 100 per cent financing.

The changes are as follows:

  • Qualifying interest rate: The qualifying intcubeerest rate for all mortgages with variable and fixed terms of less than five years will increase from June 30. It will then be either the five-year Benchmark Qualifying Rate from the Bank of Canada (currently at 4.64 per cent) or the contractual mortgage interest rate, whichever is the greater. For fixed-rate mortgages, where the term is five years or more, the qualifying interest rate is the contract interest rate.

CMHC is allowing some flexibility to implement this change, which is to be implemented as early as possible after June 30 and no later than December 31, 2015.

What does this mean for you? Even if you are getting a lower interest rate on a term less than five years, in order to get approved for that rate you still have to qualify at the Benchmark Qualifying Rate (that is, you would be able pay the mortgage if it was at the qualifying rate). Previously, conventional mortgages could qualify at the lender discounted rate.

  • photo_incentives_190Cash back for down payments:  In order to encourage borrowers to save for homeownership, lenders’ cash back programs (where the lender will give the borrower up to 5 per cent of the value of the property in cash after the mortgage has been funded) will no longer be considered an eligible source of down payment unless borrowers can come up with a 5 per cent down payment on their own. This change will become into effect on June 30.
    This means that borrowers will need to get their down payment from traditional sources, such as savings, RRSPs (tax-exempt for first-time home buyers), gifts from immediate family, proceeds from the sale of another property, and so on.
  • Verification of income: Lenders will now be required to obtain “thiincomerd party verification” of income from all borrowers. This means lenders will be more stringent on income and employment verification. All lenders will have to call the employer for verification of tenure, position and income. Many lenders have already started asking for this information for quite some time. Some lenders are asking for bank statements for the past three months showing the deposit of your pay cheque into your bank account if the payroll is not prepared and paid by a third-party company such as ADP or Ceridian. This change will be effective on June 30.

CMHC stopped insuring “stated income” financing for self-employed individuals. Genworth and Canada Guaranty are still offering this program. At this point, we don’t know if there will be any changes.

This means that borrowers are going to have to provide quite a bit more documentation in order to verify income.

Why are All These Changes Happening?

The reason why there hchange-on-the-horizonave been so many mortgage rule changes, and more are on the way, is to ensure that all lenders follow policy and guidelines to include income verification and ratio qualification set up by OSFI. Previously, some lenders have been issuing mortgages without properly obtaining the proof of income. Insurers will be required to do their own due diligence and not only rely on what the lenders are telling them.

In addition, with historic low interest rates, the Government of Canada wants to minimize the risk once interest rates start going up and prevent what happened in the US with mortgage crisis.

While these changes are under way, many lenders have already made these changes on their lending guidelines and policies since last year in order to minimize their exposure and reduce risk. While Genworth and Canada Guaranty haven’t announced changes on the third-party verification, because many lenders have, this will be the new norm in the industry.

The good news is that there are still some lenders out there that haven’t adjusted their policies and will not do so until required to do so on June 30. For this and many other reasons, it is beneficial to use a mortgage expert who works with multiple lenders to find the best mortgage for your unique situation. We would be pleased to assist you, we can be reached at 778.893.0525.