Quick guide to your best short-term financing options

General Kim Stenberg 15 Nov

Short-term financing – credit or loans that are designed to be paid off in a short period of time – can be a useful financial tool in a variety of different situations, such as:

Bridge financing

If you’re planning on moving and have found a new home before selling your existing one, you may need a short-term loan to make a down payment on the new place.

Seizing an investment opportunity

If an opportunity arises, a quick injection of cash will enable you to take advantage of it.

Consolidating debt

If you have multiple different loans, you can consolidate them into one single loan if you find one with a lower interest rate.

Covering unexpected expenses

Accessing some short-term cash will let you cover unplanned expenses, such as paying off medical bills or helping out an adult child during a period of unemployment.

But what are the different types of short-term financing options? And how do you know which are right for your situation?

 

Short-term financing options

Home Equity Line of Credit (HELOC): A HELOC is a revolving line of credit secured against your home, typically allowing you to borrow up to 80% of your home’s value.

Pros:

  • Interest rates are typically low.
  • You have flexibility over when you pay it off.
  • You can access portions of the approved sum at different times.
  • You therefore only pay off and pay interest on the amount you access.

Cons:

  • Retirees can find it hard to qualify, particularly if they don’t have a regular income or a strong credit score.

Private Loan or Mortgage: These are loans which typically have a period of one year.

Pros:

  • They’re usually fairly easy to qualify for if your home has enough equity.

Cons:

  • Set-up fees and interest rates are typically high.

Short-Term Installment Loan: These are loans in which set amounts are repaid at regular intervals for the term of the loan.

Pros:

  • You pay it off in installments rather than all at once.

Cons:

  • Unlike a credit card or line of credit, you can’t access portions of the approved sum at different times.
  • They can include hidden prepayment fees.

Payday Loan: A payday loan is a short-term loan characterized by very high interest.

Pros:

  • Usually easy to qualify for.
  • You can often access them even if you have a bad credit score.

Cons:

  • Interest rates are extremely high – often exceeding 300% over a year.

Convertible Mortgage: These are short-term mortgages, typically six months, with a fixed interest rate.

Pros:

  • They can be switched to a long-term mortgage if you choose.

Cons:

  • They usually have a higher interest rate than adjustable rate loans.

Cross Collateralization: This is when the collateral of one loan, such as a car, is used to secure another loan you have with the same lender.

Pros:

  • Interest rates can be lower.

Cons:

  • The lender may keep you from selling the asset being used as collateral, even if you have paid it off.

A New Short-Term Financing Option: CHIP Open is a new, short-term financing product offered by HomeEquity Bank. It’s a reverse mortgage which allows you to access up to 55% of the value of your home in tax-free cash. However, unlike a traditional reverse mortgage, there are no prepayment fees, meaning you can pay off the full amount whenever you like.  *Only available for Canadians aged 55+.

Pros:

  • Easier to qualify for than other short-term products since its not based on income or credit rating.
  • No monthly repayments.
  • Interest rate and fees are highly competitive in the short-term lending space.
  • If you decide you need a longer-term solution, you can switch to the CHIP Reverse Mortgage at a lower interest rate.

Cons:

  • Only available for Canadians 55+.
  • You must own your home.
  • Interest rates are higher than the regular CHIP Reverse Mortgage, allowing us to completely waive any prepayment penalties.

If you’d like to find out more about how CHIP Open can help you with your short-term financing needs, contact me today.

 

Source: HomeEquity Bank

What is Alternative Lending?

General Kim Stenberg 26 Oct

When it comes down to getting approved for a mortgage, there are a lot of factors and not everyone will qualify.

So what are your options if the banks say “no”?

When conventional lenders (such as banks or credit unions) deny mortgage financing, it can be easy to feel discouraged. However, it is important to remember that there is always an alternative! That’s where alternative lenders come in.

what is an alternative lender?

While the big banks, monolines and credit unions – or “A lenders” as they are sometimes referred – are viewed as the gold standard in the mortgage industry, some people have no choice but to consider other options for financing.

If you’re seeking a mortgage, but your credit score is damaged in some way and big institutions won’t lend you the money, you’ll find yourself in what’s commonly referred to in the industry as the “Alternative-A” or “B” lending space.

Much like the A Lender space, there are various companies which operate in the B lending space. Some B lenders are known as Mortgage Investment Companies (or MICs). Like the big banks, they’re still regulated, have shareholders and a board of directors and essentially act like a typical company. Equitable Bank and Home Capital are examples of other institutions that offer alternative options.

Alternative lenders cater to individuals which lack a strong credit history, or a guaranteed income (recent immigrants, or the self employed, for instance). As a result, these lenders generally have lower entry qualifications, which are offset by higher interest rates.

WHY IS ALTERNATIVE LENDING NECESSARY?

  • CRA arrears
  • Income issues such as non-traditional income as with self-employed borrowers
  • Credit issues such as low credit score, credit arrears, current mortgage or even bankruptcies
  • Unexpected liens on title
  • Foreclosure situations
  • Unique financing needs/opportunities

private or unregulated lenders

Beyond B-lenders are another alternative, which are known as Private or Unregulated lenders. These could just be individuals with money who are looking to invest. They are not regulated by any agency, and their rates and fees could be quite high.

These lenders are not required to stress test mortgage applicants, but many will abide by lower qualification rates. As a result, getting approved for a loan through an alternative or uninsured lender can be much easier than going through a traditional bank or credit union.

However, the same with B Lenders, it is vital to pay close attention to the deal an unregulated lender offers. Lower qualification rates tend to come with baggage in the form of high interest rates or penalties.

plan b mortgage services

Cole Hennig, president of Plan B Mortgage Services, explained his company typically deals with clients who are self-employed, have damaged credit and a score somewhere below 650. Some have difficulties proving their income. They could be looking for a second mortgage or seeking a way to keep their current home. He also noted that his clients often experienced a “trigger event”, such as a job loss or work-place injury, which forced them to take on more debt than they and can’t manage.

The point of using an alternative lender, according to Hennig, is to get back into the good books of a conventional lender. Plan B will work with their clients, offering a full assessment of their situation, and provide tools to repair their credit. However, Hennig added it’s critical his clients have a path to getting out of the B lending space.

“Usually, we’re seeing people who have hit a rough spot, and our job here is to get them an immediate solution,” he said. “But, if it doesn’t lead anywhere, it’s no good to us. We’re not going to do a deal if we don’t see how it’s going to help them get back to the best place they can be.”

At that point, Hennig said a difficult conversation with the client needs to be had, which could include advising them to sell the home to avoid foreclosure.

considerations for alternative mortgages

Due to the “B” Lender space, it is important to take a good look at the conditions for these mortgage products to ensure that you won’t get trapped with rates you can’t afford.

Before considering an alternative mortgage, there are a few things you should ask yourself:

  1. What issue is keeping me from qualifying for a mortgage today?
  2. How long will it take me to correct this issue and qualify for a mortgage?
  3. How much do I currently have available as a down payment?
  4. Am I willing to wait until I can qualify for a regular mortgage, or do I want/need to get into a certain home today?

If you are someone who is ready to go ahead with an alternative mortgage due to heavy credit score damage, or you don’t want to wait until you’re able to qualify with a traditional lender, these are five questions you should ask when reviewing any alternative mortgage product:

  1. How high is the interest rate?
  2. What is the penalty for missed mortgage payments? How are they calculated? What is the cost to get out of the mortgage altogether?
  3. Is there a prepayment privilege? For example, are you able to avoid penalties if you give the lender a higher mortgage payment once a month?
  4. What is the cost of each monthly mortgage payment?
  5. What is the fine print?

When it comes to the alternative lending space, things can get a bit murky. Seeking the help of a mortgage broker will ensure that you are making the best decision for you! A qualified broker can help you source out various alternative mortgage products and will review the rates and terms to ensure it is the best fit.

 

Published by DLC Marketing Team

The Cost of Downsizing Your Home

General Kim Stenberg 7 Oct

Moving to a larger house is not the only time that things can change with your home and mortgage. Sometimes there comes a point when owning a home becomes a little too much to handle; or maybe you’re an empty-nester and no longer need three extra bedrooms. Whatever the reason, downsizing is a great option when you no longer need a full size home. Perhaps you want to swap your two-story family home for a rancher, or maybe a cute little apartment or townhouse! Just as there are many options for individuals expanding families, there are just as many options for people wanting to scale down.

For homeowners who are fortunate enough to now be mortgage-free and looking to scale down, you could be sitting on a gold mine!

If you do still owe on your current mortgage, it is important to remember that downsizing during your current mortgage cycle, will be breaking the mortgage. This means, you will have to go through the entire qualification process again – including passing the stress test. The stress test is now required for all mortgages. Its purpose is to determine whether a homebuyer can afford their principal and interest payments, should interest rates increase. It is based on the 5-year benchmark rate from Bank of Canada or the customer’s mortgage interest rate plus 2% – whichever is higher.

Regardless of your current situation, there are some costs that go with selling your existing home and moving to something smaller or more affordable.

Some of the costs associated to downsizing are:

  • Realtor commission fees, which range from 2.5% to 5% of the home selling price
  • Closing costs and legal fees, which are 1% to 4% of the purchase price on the new home
  • Miscellaneous costs such as moving expenses, upgrading appliances and/or buying new furniture
  • If you are moving into a condominium or townhouse, there are strata fees to consider

WHY NOT CONSIDER A REVERSE MORTGAGE?

Most individuals looking to scale down are looking to do so for retirement or because they are now empty-nesters. However, if you are looking to downsize simply due to being unable to manage your mortgage or maintenance costs, there is an option called a “Reverse Mortgage”.

A reverse mortgage is a loan secured against the value of your home. It is exclusively for homeowners aged 55 years and older and enables the homeowners to convert up to 55% of the home’s value into tax-free cash!

With a reverse mortgage, you maintain ownership of your home and can use the loan to cover costs or pay out debts. The loan would need to be repaid in the event that you choose to move and sell the current home.

If you are looking to downsize your home, we can help! Contact me today to help make your next move a successful one.

Title insurance and Home Insurance: Do Homeowners Need Both?

General Kim Stenberg 21 Sep

It’s a common question and one that deserves a little context.

Buying a home is an incredibly exciting event for any new homeowner, but with ownership of any property comes the need to protect it from a range of risks. These could include losses or damages to the home and fraudulent attempts to steal, transfer or use the ownership title. Homeowners and lenders can safeguard property from threats with the right insurance.

Many Canadians are familiar with two of the most common forms of insurance, home and title. But they may not be aware that they are two fundamentally distinct forms of coverage. This common misconception can be dangerous, and confusing the two has led many people to obtain one form of insurance, but not the other, leaving them vulnerable to greater risks down the road. The reality is, both forms of insurance are essential to provide comprehensive protection of your property.

The red-hot real estate market shows no signs of slowing down in the foreseeable future. As more Canadians become homeowners, it’s more important than ever for mortgage brokers to understand the difference between title insurance and home insurance to properly assist your clients, and the benefits of investing in both to protect what may be the largest single purchase of their lifetime.

HOME INSURANCE

Home insurance (also known as homeowners insurance or house insurance) protects a residence against losses and damages for many risks and can also include additional structures on your property. While home insurance comes in many forms in the market, the standard policy includes coverage that provides six types of protection:

  1. Dwelling coverage: the most recognized coverage, which protects from natural disasters such as fire, wind and lightening. It is important to note that flood and earthquake coverage are not always covered and may need to be purchased separately.
  2. Other structures coverage: protects sheds, fences and detached garages from natural disasters.
  3. Personal property coverage: covers the items inside the home such as furniture, clothing, electronics and jewelry. Each policy will outline the maximum amount of personal property coverage that homeowners are entitled to.
  4. Personal liability protection: pays for the legal defense if someone gets injured on the homeowner’s property. It is important to note that the policy will only pay up to the specified coverage limit. If legal costs or a settlement exceeds the coverage, the owner will be required to pay the balance out of pocket.
  5. Medical payments coverage: provides protection if someone gets injured on the property and does not want to sue. This coverage will pay for their medical expenses such as crutches or prescription medicines.
  6. Loss of use coverage: covers expenses such as a hotel stay and restaurant meals if the home becomes uninhabitable and needs repairs due to an event that is covered by the policy. Again, there is a limit to how much coverage is received for loss of use. Make sure your client checks with their insurance provider.

Home insurance is typically paid via monthly insurance premiums and the cost depends on various factors including details of the property and the province, or city. The average annual home insurance cost in Canada hovers around the $1,500-mark.

TITLE INSURANCE

Title insurance is a policy that provides protection by indemnifying against loss with respect to your ownership or true entitlement of the insured property. There are two types of title insurance: one protects property owners through an owner’s policy and the other protects lenders through a loan policy. A homebuyer receives title to a home once the previous owner has signed the deed and transferred the property over, and the homebuyer is registered in the government’s land registration system.

Many homeowners assume that title insurance is included within a home insurance policy. Because of this misunderstanding, an alarming number of Canadians today do not have title insurance. While home insurance protects homeowners from unexpected circumstances that occur on or against their property, title insurance protects the homebuyer from unexpected circumstances that affect the title to the property, such as financial loss from title fraud or other issues.

Title insurance also provides protection against loss from pre-existing issues, which may include:

  1. Challenges to title by third parties.
  2. Liens on the title due to the previous owner’s unpaid debts.
  3. Encroachment issues, such as if your client’s backyard shed is technically on their neighbour’s property and needs to be removed.
  4. Adverse matters that would have been disclosed on an up to date survey.
  5. Title fraud, which occurs when a person uses false identification to get the title of a property in order to obtain a mortgage or sell the home without the homeowner knowing or impersonating you to obtain a mortgage.

Additionally, title insurance protects homeowners from title issues that may impact their ability to sell, lease or mortgage their property in the future. It also includes a “duty to defend” to protect both buyers and lenders against expensive litigation related to title issues.

Unlike home insurance, title insurance is a one-time premium that is typically purchased at the same time as the property. However, title insurance can be purchased even if your clients already own their property. The cost of title insurance in Canada averages around $250 but can range anywhere from a few hundred to a few thousand dollars, depending on factors relating to the property.

BE PREPARED

The best way for homeowners to protect themselves from expensive and unexpected costs associated with property ownership is to understand the various risks, and to invest in the right insurance coverage.

Without question, both home insurance and title insurance are incredibly important protection options that homeowners should always consider when purchasing a home.

A home is often your clients’ most valuable asset–make sure they protect it with home insurance and title insurance.

 

Published by FCT
Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, please refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.
®Registered Trademark of First American Financial Corporation.

Strong Canadian Economic Growth in Q4 and January

General Kim Stenberg 2 Mar

This morning’s Stats Canada release showed that economic growth in the final quarter of last year was a surprisingly strong 9.6% (annualized). The surge in growth in January was even more interesting, estimated at a 0.5% (not annualized) pace. If these numbers pan out, it means that Canada did not suffer a contraction during the second wave and ensuing lockdown.

The January figure is noteworthy in that retail sales plunged as nonessential stores were closed in key parts of the country as we faced surging numbers of COVID cases. The strength came from resources, housing and government spending and the mild weather likely helped.

At its last meeting in January, the Bank of Canada (BoC) estimated that Q4 growth would come in at 4.8% (half the actual 9.6% pace) and that there would be a net contraction in Q1 of this year. The strength in Q4 emanated from very hot housing, some business investment in machinery, government outlays and a resurgence in inventory accumulation. Inventory build-up is often seen as a negative sign reflecting weak consumer spending. But maybe firms were preparing for a considerable rebound in demand.

Economists on Bay Street are upwardly revising their growth forecasts for this year, and no doubt the BoC will do so again when it meets next Wednesday. Clearly, the economy has been more resilient than expected. Will that change the Bank’s assessment of the continued need for monetary stimulus? Probably not. But it will likely temper their view that the next rate hike will not be until 2023, a sentiment the BoC has asserted regularly in the past.

Consumer spending was weak at the end of last year, not surprisingly given many stores were closed and a stay-at-home order was in place in several highly populated areas. Households have been hoarding cash. The savings rate declined to 12.7% in Q4 from as high as 27.8% earlier in the year, but that is still way above normal. Accumulated savings will provide a backstop for robust consumer spending once the economy opens up.

For all of 2020, the Canadian economy contracted by 5.4%–a substantially harder hit than in the US, which posted a 3.5% decline.

Bottom Line

The stronger-than-expected economy raises the potential that there is enough stimulus in the economy. The Trudeau government appears to be determined to hike government spending meaningfully in the next federal budget (likely coming this Spring). We know it is the government’s predilection to juice the economy for another couple of years, but that could well deserve a rethink.

 

Author: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

How does a Reverse Mortgage work?

General Kim Stenberg 6 Apr

Want to enjoy a financially stress-free retirement? I can help.

 

Do you have the funds to live the retirement you’ve been dreaming of? If you’re like many Canadians, you may find yourself house rich but short on funds. The good news is that if you’re a homeowner who is 55+, there’s a solution to help you live the life you’ve always imagined.

 

Access up to 55% of your home’s value with the CHIP Reverse Mortgage from HomeEquity Bank.

 

What exactly is a reverse mortgage? It’s a loan secured against the value of your home, while you continue to own and enjoy living in it.

 

Here are the great benefits of the CHIP Reverse Mortgage:

 

You retain 100% ownership of your home. The title and ownership of your home belong to you, not the bank.

 

The money you get is tax-free. It also doesn’t impact your Old Age Security or Guaranteed Income Supplement. Meanwhile, keep your investments growing without being taxed for withdrawing from your portfolio.

 

You decide how to spend the money you get. You can use the net proceeds from your CHIP Reverse Mortgage to make home renos or retrofits, pay unexpected expenses, financially help children or grandchildren, purchase a second property, even take a dream vacation.

 

There are no regular mortgage payments required. Once you decide to leave your home, the interest and principal and any applicable charges are simply paid off from the proceeds of the home sale. You are still required to maintain your property taxes, fire insurance and condominium or maintenance fees.

 

No negative equity guarantee. You will never owe more than the fair market value of your home with the CHIP Reverse Mortgage.

 

With all of these advantages, it’s easy to see why thousands of Canadians 55+ have benefited from the CHIP Reverse Mortgage. You can too. Let’s talk about the retirement fund potential of your home. Give me a call to find out more!

Homeowner Tax Tips

General Kim Stenberg 3 Mar

It’s that time of year when we are compiling our receipts and updating our spreadsheets to file taxes for 2019.  As a homeowner, here are some deductions and expenses you should be discussing with your accountant.

 

HOME BUYERS TAX CREDIT

You can claim $5,000 for the purchase of a qualifying home in the year if both of the following apply: you or your spouse or common-law partner acquired a qualifying home, and you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years (first-time home buyer).  The credit is also available for homes acquired by individuals who are eligible for the disability tax credit (DTC), or by an individual for the benefit of a DTC-eligible relative, if the home is acquired to enable the individual to live in a more accessible dwelling.

 

GST/HST NEW HOUSING REBATE

The GST/HST new housing rebate allows an individual to recover some of the goods and services tax (GST) or the federal part of the harmonized sales tax (HST) paid for a new or substantially renovated house that is for use as the individual’s, or their relation’s, primary place of residence, when all of the other conditions are met.

The new housing rebate is not available to a corporation or a partnership.

 

RENTAL INCOME

Reasonable expenses you incur to earn rental income such as advertising, insurance, professional expenses (legal and accounting fees), property taxes, repairs and maintenance, travel are deductible.

 

HOME BUYERS PLAN 

Did you withdraw RRSPs under the Home Buyers’ Plan? Make sure you know when and how much to repay.

 

MOVING EXPENSES

Generally, you can claim moving expenses you paid in the year if both of the following apply: you moved to work or to run a business, or you moved to study courses as a full-time student enrolled in a post-secondary program at a university, a college, or another educational institution; and, you moved at least 40 kilometres closer to your new work or school.

 

HOME ACCESSIBILITY EXPENSES

A maximum of $10,000 per year in eligible expenses can be claimed for a qualifying individual for expenses such as building materials, fixtures, equipment rentals, building plans and permits that allow the qualifying individual to gain access to, or to be mobile or functional within, the dwelling; or reduce the risk of harm to the qualifying individual within the dwelling or in gaining access to the dwelling.

 

Please seek professional tax advice from an accountant, or visit Government of Canada Homeowners page for more details.

 

 

 

Down Payment – Getting it right the first time

General Kim Stenberg 25 Feb

Down payment is an essential component of every application when purchasing property – minimum amount required AND verifying the source of the money.

The federal government has imposed strict rules (FINTRAC anti-money laundering and anti-terrorist financing regime) that ALL federally regulated banks and lending institutions must follow.  This legislation came into effect as an attempt to prevent unscrupulous individuals from using cash down payments when purchasing properties as an easy way to launder money.

Link to more info here: https://www.fintrac-canafe.gc.ca/fintrac-canafe/antimltf-eng

 

Most Common Down Payment Sources:

GIFT (from an immediate family member): if you are receiving any  portion of the down payment as a financial gift we will provide you with a gift letter to be signed by the individual(s) gifting the funds, as well as confirmation funds have been deposited to your account

SALE OF ANOTHER PROPERTY:  copy of the Sale Contract and Trust Ledger OR Statement of Adjustments & Disbursements (from your lawyer) to verify net sale proceeds

“OWN RESOURCES” if funds are coming from your chequing/savings account(s), Investments (RRSPs, TFSAs, mutual funds, stocks, bonds, etc.), or an accumulation of these accounts, we require a 90-day history (3 full months)

A common hesitation we hear from clients is about their bank statements, which obviously include a lot of personal details. We understand your concerns and have policies and procedures to make sure your privacy and personal information is protected.  On this note, we require unaltered bank statements; blacked out names, account numbers, or any other details are NOT acceptable and will be rejected by the lender.

TRANSFERRING FUNDS from one account to another; any large transfers or deposits will have to show a (90-day) history/source of where the money went and/or where it came from.

Large or unusual deposits need to be verified as an acceptable source for down payment:

  • Received a gift from an immediate family member? Easy, we’ll provide you with a gift letter to be signed by the individual who gave you the funds
  • Sold a vehicle? Easy, provide bill of sale
  • Tax refund from CRA?  Easy, provide Notice of Assessment confirming amount
  • Transfer from your TFSA to chequing account?  Easy, provide the 90-day history for the TFSA along with withdrawal
  • *CASH DEPOSITS* less than $1,000, fine, but cash deposits over $1,000 that you cannot provide confirmation for?  Lenders will ask for source of funds.  Money that is “under the mattress” could be a deal breaker.  Funds must be deposited into a Canadian account at least 90 days prior to you placing an offer on a property.  Please talk to us BEFORE making any deposits, we will guide you on how to handle this properly.

 

CONVENTIONAL vs HIGH RATIO MORTGAGE

If your down payment is LESS THAN 20% of the purchase price, your mortgage is considered a High Ratio / Insured. These mortgages require mortgage default insurance, and the insuring companies (CMHC, Genworth, or Canada Guaranty) charge an insurance premium which is added to and paid along with your mortgage.

If your down payment is 20% OR MORE of the purchase price, you will have a Conventional Mortgage, and mortgage default insurance is not required.

 

TRADITIONAL vs NON-TRADITIONAL DOWN PAYMENT

A traditional down payment comes from sources such as savings, RRSPs, the sale of a property, or a non-repayable financial gift from an immediate family member.

Planning on borrowing money from a friend, credit card, unsecured line of credit, or personal loan?  This is considered non-traditional down payment. Additional qualifying criteria applies, we need to know this up front.

 

RRSP / HOME BUYERS PLAN

Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home – tax-free and interest-free – as long as those funds are repaid into the RRSP over 15 years. If you do not repay the amount due for that year (i.e. $35,000 / 15 years = $2,333.33 per year), it will be added to your (taxable) income for that year.

If you buy a qualifying home together with your spouse or partner, each of you can withdraw up to $35,000. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.

 

FIRST-TIME HOME BUYER INCENTIVE PROGRAM

This program launched in September 2019 to help qualified first-time homebuyers reduce their monthly mortgage payments by offering additional 5% down payment for a purchase of a resale (existing) home or up to 10% additional down payment for purchase of a newly constructed home.  It is a shared-equity mortgage with the Government of Canada; the effect of the larger down payment is a smaller mortgage, and ultimately, lower monthly costs.  The homebuyer will have to repay the Incentive based on the property’s fair market value at the time of repayment – after 25 years OR when the property is sold, whichever comes first.  The government shares in both the upside and downside of the property value at time of repayment.

 

MONEY FROM OUTSIDE CANADA

Using funds from outside of Canada is acceptable, however, you need to have the money on deposit in a Canadian financial institution for at least 30 days before your closing/possession date.

 

CLOSING COSTS

In addition to your down payment, lenders want to see that you have additional funds available for closings costs; such items as land transfer tax*, legal fees, GST/HST-if required, property tax adjustments, and interest adjustments.  The general guideline for closing costs is 1.5% of the purchase price.

*We do not have land transfer taxes in Alberta and it is highly unlikely that your closing costs will actually be 1.5% of the purchase price.  But, keep in mind that this number is commonly used by lenders when accessing overall risk/fallback, and to approximate funds that they want to see, in addition to the down payment.

 

Please be upfront with your broker and discuss your down payment at the beginning – doing so will save everyone time and stress later in the process 😊

 

How to Verify Your Down Payment When Buying a Home

General Kim Stenberg 4 Feb

HOW TO VERIFY YOUR DOWN PAYMENT WHEN BUYING A HOME

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, it’s all about what you can prove (hard to believe – but some people have lied in the past – horrors!).
Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which changes your lending ratios and potential your mortgage approval.

DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT

This is a government anti-money laundering requirement and protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax Free Savings Account (TFSA) or investment money.

  • Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders don’t like to hear that you’ve just deposited $10,000 cash that has been sitting under your mattress. Your bank statements will need to clearly show your name and your account number.
  • Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.

 

2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required.

  • Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
  • Be prepared to show the gifted funds have been deposited in your account 15 days prior to closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. Bank documents will need to show the account number and names for the giver and receiver of the funds. Contact me for a sample gift letter.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

  • Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.
  • If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
  • You must repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
  • Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your currently home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

  • If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date.  Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal, appraisal, home inspection, taxes, etc.).

  • Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment.
    Property Transfer Tax (PTT) cannot be financed into the mortgage

Buying a home for the first time can be stressful, therefore being prepared with the right documentation for your down payment and closing costs can make the process much easier.
Mortgages are complicated, but they don’t have to be. Contact a Dominion Lending Centres mortgage professional near you.

KELLY HUDSON, Dominion Lending Centres – Accredited Mortgage Professional

Bank of Canada Holds Policy Rate Steady Amid Global Uncertainty

General Kim Stenberg 30 Oct

 

It is rare for the Bank of Canada and the US Federal Reserve to announce rate decisions on the same day, but today’s announcements highlight the stark differences in policy in the two countries. The Bank this morning announced they would maintain their target for the overnight rate at 1.75% for the eighth straight meeting. The Fed is widely expected to cut its target for the fed funds rate by another 25 basis points, taking it below the key rate in Canada for the first time since 2016. More than 30 central banks have cut interest rates in the past year and the Bank of Canada in today’s Policy Statement highlighted the weakening in the global economic outlook since the release of its July Monetary Policy Report (MPR).

In today’s MPR, the Bank revised down its forecast for global economic growth this year to below 3.0%, reflecting a downward revision in growth in the United States to 2.3% (from 2.5%), the Euro area (to 1.1% from 1.2%), oil-importing emerging market economies and the rest of the world. China’s growth pace remains at a 30-year low of 6.1%.

Trade conflicts and uncertainty are weakening the world economy to its slowest pace since the 2007-09 economic and financial crisis. The slowdown has been most pronounced in business investment and the manufacturing sector and has coincided with a contraction in global trade (Chart 1). Despite the manufacturing slowdown, unemployment rates continue to be near historic lows in many advanced economies, as growth in employment in service sectors has remained resilient.

Growth is projected to strengthen modestly to around 3.25% by 2021, with a pickup in some emerging-market economies (EMEs) more than offsetting slower growth in the United States and China.

 

Canada has not been immune to these developments. Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.
Growth in Canada is expected to slow in the second half of this year to a rate below its potential. This reflects the uncertainty associated with trade conflicts, the continuing adjustment in the energy sector, and the unwinding of temporary factors that boosted growth in the second quarter. Business investment and exports are likely to contract before expanding again in 2020 and 2021. At the same time, government spending and lower borrowing rates are supporting domestic demand, and activity in the services sector remains robust. Employment is showing continuing strength and wage growth is picking up, although with some variation among regions. Consumer spending has been choppy but will be supported by solid income growth. Meanwhile, housing activity is picking up in most markets. The Bank continues to monitor the evolution of financial vulnerabilities in light of lower mortgage rates and past changes to housing market policies.

Canadian Economy Boosted By Housing

The Canadian economy grew at a moderate pace over the past year, supported by a healthy labour market and the recent turnaround in housing. However, global trade conflicts and related uncertainty dampened business investment and export activities, and investment in the energy sector continued to decline. The impact on growth of both global headwinds and energy transportation constraints is expected to diminish, and the pace of economic expansion should gradually pick up in 2020 and 2021.

In 2020 and 2021, Canada’s economy is anticipated to grow near potential. Consumer spending is projected to increase at a steady pace, and housing activity to continue its ongoing recovery. Overall, investment and exports are anticipated to grow moderately. In the energy sector, investment is forecast to stabilize, and oil exports should improve as pipeline and rail capacity gradually expands.

In today’s MPR, the Bank states that housing resales have been catching up to underlying demand (see chart 7 from the MPR). Housing markets generally reflect regional economic conditions. Housing starts and resales have been particularly robust in Quebec and Ontario, where labour markets have been strong. These provinces will likely continue to be the main drivers of the growth in residential investment. In Alberta, where the oil industry is expected to stabilize, modest improvements in housing are expected. In British Columbia, residential investment has recovered in recent months and should remain near current levels, reflecting the creation of new households.

 

Bottom Line

The dovish tone of today’s policy statement suggests that the Bank of Canada has become more cautious in its holding pattern amid a weakening global economy. The central bank “is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist,” policymakers led by Governor Stephen Poloz said in the statement. “In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.”

The statement and the fresh batch of more pessimistic growth forecasts will raise questions about the central bank’s commitment to a neutral stance on rates, particularly in the face of global easing in many other countries that has made the Bank of Canada an outlier. If the Federal Reserve lowers its interest rates later today, as expected, the Bank of Canada would have the highest policy rate in the industrialized world.

It may well be that the Bank of Canada cuts rates early next year. Mitigating this prospect is that the Bank was more bullish on consumption and housing–fueled by the robust labour market. Another source of future growth is additional fiscal stimulus from Prime Minister Justin Trudeau’s newly elected Liberal government, which has promised to implement new spending and tax cuts next year. For now, the Bank is maintaining a neutral stance.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca
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