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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 However, you will have to repay any amount withdrawn from your RRSP for down payment of a home purchase.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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The Bank of Canada drops the key interest rate. How does this change will impact me?

It was a huge surprise to everyone when the Bank of Canada announced yesterday that it is cutting its key interest rate by 0.25% to 0.75% from 1.00%.  There hasn’t been a movement upwards on downwards in the key interest rate in over 4 years.

The big question is – What impact is this change going to have on me?

Cheaper mortgages for clients that have variable or adjustable mortgages:
Since variable and adjustable rate mortgages are determined by the prime interest rate and are linked to the overnight interest rate of the Bank of Canada. This will also be dependent on each individual lender if they reduce their own prime interest rate.  Current mortgage holders with fixed interest rates, will not see a change on your monthly payments. However, people that are taking a new fixed rate mortgage or renewing their old one right now could see the interest rates come down. The reason being that fixed mortgage rates are dependent on the bond market.  The bond market have already started to come down of the change in the interest rate by the Bank of Canada.

Unsecured and secured lines of credits:
Similar to the variable and adjustable mortgages, unsecured and secured lines of credit are normally linked to the bank’s prime interest rate which is linked to the Bank of Canada’s overnight rate. Which means that if you are borrowing money from a line of credit your cost of borrowing will come down. Again, this will be dependent whether or not the bank cuts their prime interest rate.

There was a huge drop on the loonie:
With yesterday’s announcement on the drop of the Bank of Canada’s overnight rate it affected the Canadian dollar as it had a huge drop.  This means that if you are looking a shopping in the States or planning an international trip it is going to cost more.

Saving accounts:
By the Bank of Canada changing the overnight rate it will affect the interest you will get from having money in a traditional savings account. There won’t be a huge change but if you are not earning much interest before you will be earning even less.  Perhaps it might be worth it to explore other options.
Is your mortgage coming up for renewal, you are thinking of refinancing or looking at purchasing a new home? We will be pleased to help you explore your options based on your individual needs.  After all, it is not about the mortgage, it’s about a strategy that is going to help you save time and money in the long run especially when interest rates start going up!


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You can pay your mortgage faster with “The Java Factor”

As Mortgage & Leasing Experts, we always seek for “the best mortgage” for our clients; the mortgage that not only provides the best interest rate, but also the one with the best terms and conditions.

With a fixed interest rate, closed term mortgage, you can’t pay off your mortgage before the end of the term without having to pay a penalty.

The pre-payments without penalty clause is one of the conditions that can save you considerable amount of money in the long run.  This clause allows you to make payments of the principal of your loan, or increase the amount of your periodic payments (monthly, bi-monthly, etc.) without a penalty. Each lender has different programs for pre-payments, they usually vary from 10% to 25%, i.e., you can pay any amount within the approved percentage of the original value of your mortgage or increase your periodic payments once a year without paying a penalty.

Many people don’t take advantage of this clause because it is generally difficult to save the extra money to make additional payments.

We always tell our clients that the easiest way to take advantage of this benefit is what we call “The Java Factor”. This is something that is very easy to follow and can save you thousands of dollars on pay down your mortgage.

Usually everyone buy a cup of jo (coffee) or two during their work days. When we see the cost of a cup of coffee at Starbucks or any other establishment, we realize that maintaining this habit can be very costly.

Suppose that you spend at least $5 per day, 5 days a week in “coffee, donuts, chocolates, cigarettes etc.”, this would amount to approximately $108 per month; if you apply them to your monthly mortgage payments, the savings can be considerable.

Example:

In a $100,000 mortgage at a rate of 2.89% and 30 years amortization, you would reduce the total payment of your mortgage by 7 years 5 months with savings of $15,341 in interest. For this calculation, we considered that the interest rate did not change during the life of the mortgage.

This calculation would vary case by case but depending whether you have a pre-payment clause with your mortgage or not, it is important to emphasize that by making a small sacrifice you can have significant long-term savings.

So remember “The Java Factor” and go to work with a cup of coffee brewed at home.