Debt Reduction Key as Interest Rates Soar.

There are lots of reasons people fall into debt but only one way out — and it requires a combination of planning, discipline, and persistence. With the rise in interest rates, there is no better time to map out an action plan to reduce your debt.

Start by gathering information about all of your debts — student loans, credit cards, lines of credit, car loans, overdue bills — everything. Make a list of all the debts with the details of the amounts owed, interest rate, and minimum monthly payments. This will help you set goals, create a timeline, and prioritize your repayments.

Your first goal is to make sure everyone gets paid the minimum amount required to avoid your debts going into arrears. Overdue bills and missed payments are going to play havoc on your credit score and it can take a lot of time and effort to rebuild.

The next step is to figure out how much more you can allocate from your current income for debt repayment. One common debt pitfall is to look at your situation and conclude that more income is the solution — and immediately start looking for ways to make extra money. While more income can obviously help you reduce debt, it shouldn’t be your first step.

The most important step is to create a realistic budget. Reducing the expense side of your monthly budget is going to free money to pay off debt much faster than pumping up your income on the top line. You need to identify areas where you can reduce expenses and channel those savings to your debt repayment fund. It’s critical to start accurately tracking your expenses and get the actual data on your spending, not just a guesstimate based on your feeling.

When it comes to who to pay first, there are two commonly used strategies for prioritizing debts: the debt avalanche method and the debt snowball method. With the avalanche method, you focus on paying off the debt with the highest interest rate first while making minimum payments on other debts. The snowball method involves paying off the smallest debts first, regardless of interest rates, and then moving on to larger debts.

From a financial perspective, the avalanche method is the best way to pay off debt, especially if the interest rate differential is large. The snowball method may improve your motivation, but it makes no sense to pay off a small home equity loan at 6% if you are carrying credit card debt at 20%!

Interest rates on credit card balances haven’t been affected by Bank of Canada rate changes (unlike other loans!), but they are already so high that in almost every case they should be the starting point for your debt reduction efforts. If you have been making payments and your credit rating is not too bad, you may be eligible for a credit card balance transfer offer with a promotional 0% interest rate for a specific period. Make sure you have a realistic plan and are disciplined before you sign up for any balance transfer options or credit card consolidation loans. They are a good option for managing credit card debt as they lower or defer the interest, but you need to stay on the payment schedule. If you have any investments (TFSA?), selling them to pay off credit card debts usually makes financial sense.

Paying off debt is a long-term commitment that requires discipline — there is no quick way out. Once you get started and see some progress, your mindset will begin to shift, and a huge weight will start to lift. Becoming debt-free or at least in a position where debt stress doesn’t consume your life will do as much for your mental health as it will for your financial health.

Title fraud is a danger in B.C., and home insurance can’t protect you from it.

It’s not just Ontario: title fraud cases are on the rise in B.C. as well. Daniela DeTommaso, President of FCT, recently sat with Weekend Mornings with Stirling Faux on 980 CKNW to discuss the rising threat.

“[Fraud has become] so sophisticated,” Daniela explains. “If you were to look at some of the [forged] identification that’s being used, an untrained person would never be able to tell the difference.”

Protecting consumers comes down to two things: detection and coverage. “As a title insurance company, not only are we there to protect you […], but our biggest goal is to prevent these things from ever happening,” says Daniela.

When it comes to protecting their property, many homeowners are used to relying on their home insurance. But it can’t protect them from title or mortgage fraud.

What’s the difference between home insurance and title insurance?

Home insurance covers you for things that can happen to/on your property such as:

• Damage to the home or other structures
• fire and flood
• medical liability
• damaged or stolen items

It protects the parts of your property you can touch—structures and items. But that’s only half of the story.

Title insurance protects the part of your property you can’t touch—your right to own it. That right is called your “title,” and if your title is defective, you can’t leverage your home equity or sell the property. There are many risks title insurance can cover, but one of the most damaging is the risk of someone stealing your right to ownership.

TITLE FRAUD

Title fraud is when someone impersonates a property’s owner, then either takes equity out or sells it. If someone registers a fraudulent mortgage on your property, it can cost tens of thousands in legal fees to repair your title, and you can’t sell or leverage your home until you do.

In B.C., if your home is fraudulently sold to an innocent buyer, they get to keep it. Without title insurance, you could lose your home and your equity, with no way to recoup your loss. Title fraud is a real danger, and home insurance can’t protect you from it.

How title insurance protects homeowners and homebuyers

A title insurance policy can cover your losses from losing the insured property, and also carries with it a duty to defend. “We have to pay any legal fees incurred in the course of trying to rectify the problem,” says Daniela. “We are someone to hold your hand through that process, and […] indemnify you against any [covered] loss or damage.”

How do I know if I have title insurance?

Most people with title insurance purchased it during closing. It’s a one-time premium, so there aren’t monthly insurance payments to remind you of your policy. Consult your closing documents and check for an owner’s title insurance policy—you’ll likely see a lender’s title policy, which unfortunately isn’t the same thing.

If you don’t find an owner’s policy, you can reach out to the title insurer who provided your lender policy. They’ll be able to tell you if you have owner’s coverage.

IF I DIDN’T BUY TITLE INSURANCE DURING CLOSING, IS IT TOO LATE?

No, it’s not too late. You can purchase title insurance no matter how long you’ve owned your home. For a one-time premium, you get coverage that protects you for as long as you have an interest in the property. It can also transfer to your spouse or heirs if they take ownership.

Your home is your biggest investment—don’t leave it at risk.   If you would like to purchase Title Insurance for yourself, be sure to book a strategy call with me to discuss.

After You Buy – Closing Tips.

Now that you have finished signing your mortgage paperwork and getting the keys to your first home, there are a few things to keep in mind after you buy to protect your investment and ensure future financial success!

1. Maintaining your home and protecting your investment: Becoming a homeowner is a major responsibility. It’s up to you to take care of your home and protect what is likely your biggest investment.
2. Make your mortgage payments on time: There are many options when it comes to mortgage payment frequency. Whichever schedule you choose, always make your payments on time. Late or missed payments may result in charges or penalties, and they can negatively affect your credit rating. If you’re having trouble making payments, please contact your mortgage broker as soon as possible.
3. Plan for the costs of operating a home: You will have several ongoing costs besides your mortgage, property taxes and insurance. Maintenance and repair costs are at the top of the list, along with expenses for security monitoring, snow removal and gardening. If you own a condominium, some of these costs may be included in your monthly fees.
4. Live within your budget: Prepare a monthly budget and stick to it. Take a few minutes every month to check your spending and see if you’re meeting your financial goals. If you spend more than you earn, find new ways to earn more or spend less.
5. Save for emergencies: Your home will need some major repairs as it ages. Set aside an emergency fund of about 5% of your income every year so you’ll be prepared to deal with unexpected expenses.

If you have any additional questions about closing, or your mortgage upkeep, please don’t hesitate to book a strategy call with me today!

Second Mortgages: What You Need to Know.

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them. Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage.

The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

• The ability to access a large loan sum (in some cases, up to 90% of your home equity) which is more than you can typically borrow on other traditional loans.
• Better interest rate than a credit card as they are a ‘secured’ form of debt.
• You can use the money however you see fit without any caveats.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

• Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
• Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to book a strategy call with me! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

How Job Loss Affects Your Mortgage Application.

Whether you’ve made an offer on a home already or are still in the process of looking, you already understand that buying a home is likely the largest investment you’ll ever make.

When it comes to your mortgage application, there are a few things that you should avoid doing while you’re waiting for approval – such as making large purchases (i.e. a new car), applying for new credit, pulling additional credit reports, etc. Another issue that can come up is the loss of your job.

What you can afford to qualify for in relation to your mortgage depends on your income. As a result, the sudden loss of employment can be quite detrimental to your efforts. So, what do you do?

Should You Continue With Your Mortgage Application?

If you’ve already qualified for a mortgage, but your employment circumstances have changed, your first step is to disclose this to your lender. They will move to verify your income prior to closing and, if they have not been told in advance, it may be considered fraud as your application income and closing income would not match.

In some cases, the loss of your job may not affect your mortgage. Some examples include:

• You secure a new job right away in the same field as previously. Keep in mind, you will still need to requalify. However, if your new job requires a 3-month probationary period then you may not be approved.
• If you have a co-signer on the mortgage who earns enough income to qualify for the value on their own. However, be sure your co-signer is aware of your employment situation.
• If you have additional sources of income such as income from retirement, investments, rentals or even child support they may be considered, depending on the lender.

Can You Use Unemployment Income to Apply for a Mortgage?

Typically this is not a suitable source of income to qualify for a mortgage. In rare cases, individuals with seasonal or cyclical jobs who rely on unemployment income for a portion of the year may be considered. However, you would be asked to provide a two-year cycle of employment followed by Employment Insurance benefits.

What Happens During Furlough?

If you did not lose your job entirely but have instead been furloughed or temporarily laid off, your lender may take a wait-and-see approach to your mortgage application. You would be required to provide a letter from your employer with a return-to-work date on it in this situation. However, if you don’t return to work before the closing date, your lender may be required to cancel the application for now with resubmitting as an option in the future.

Have You Talked to Your Mortgage Professional?

Regardless of the reason for the change in your employment situation, one of the most important things you can do is book a strategy call with me directly to discuss your situation. They can look at all the options for you and help with finding a solution that best suits you.

When you’re looking for a new mortgage or refinancing, lenders will look at both your debt servicing ratios and your credit score as part of the process. Your debt servicing ratios give lenders information about your ability to repay the money you borrowed, while your credit score provides information about the way you manage credit.

It’s not just having a good credit history and making your payments on time. Lenders will compare your financial obligations to your income—and there’s a ratio for that.

HOW ARE DEBT SERVICING RATIOS CALCULATED?

There are two ratios you need to worry about—gross debt servicing (GDS) and total debt servicing (TDS).

Gross debt servicing (GDS)

This is the maximum amount you can afford for shelter costs each month. It’s your monthly housing costs divided by your monthly income.

Total debt servicing (TDS)

This is the maximum amount you can afford for debt payments each month. It’s your monthly debt and housing costs divided by your monthly income.

If too much of your income is already going to housing costs and debt payments, according to your lender, you may not be able to afford to take on more debt.

WHAT DOES DEBT SERVICE RATIO MEAN AND WHY IS IT IMPORTANT?

Lenders use ratios to assess risk and understand if you will be able to make your monthly payments on a mortgage. Generally, traditional lenders like to see a GDS ratio between 35% and 39% and a TDS ratio that is between 42% and 44%

If the ratios are higher, that does not mean you won’t qualify for a mortgage, but you may end up paying a higher interest rate. In fact, taking a shorter term with an alternative lender might allow you to extend both ratios up to 55%.

In general, the better your debt servicing ratios and credit score, the lower your interest rate will be. This is because lenders view you as more reliable and it shows that you manage your money well and make your payments on time. Even if you need to refinance now, at a slightly higher rate, you can look at getting into a lower rate in a couple of years when your mortgage renewal is up.

Your debt servicing ratio also lets you know how well you’re managing your budget. If your TDS ratio is over 44%, you are spending too much of your income on debt already and you may be unable to borrow without a co-signer. A co-signer’s credit history and income are factored in with yours. This gives the lender some reassurance that the payments will be made because the co-signer is as responsible for the mortgage as you are.

CALCULATING YOUR PERSONAL DEBT SERVICING RATIOS

Start by adding up your monthly debt payments. Include those fixed costs that you must pay every month:

Next, add up your monthly income:

• Paycheque (before taxes)
• Retirement or pension payments
• Benefits payments
• Spousal or child support
• Rental income
• Any other monthly income

Formulas:

Examples:

Your income (before taxes) is $6,500 per month. You have a monthly mortgage payment of $1,400, property taxes of $ $300, and $ $100 for heat. Your GDS ratio is calculated as $1,800/$6,500 x 100 = 27.69%

Your income (before taxes) is $6,500 per month. You spend $300 for your car payment. You have $2,500 in credit card debt, and 3% of the outstanding balance is $75 for a total of $375 per month. Your TDS ratio is calculated as $2,175÷ $6,500 x 100 = 33.46%.

To learn more about specific mortgage approval ratios, check out this handy article.

Note: If you have a two-income household, include the debt payments and income for both of you. This is important because you have more income between you, and you share the cost of some of the debt.

Now that you know how a lender is going to assess your mortgage application, you can take the necessary steps to lower your debt servicing ratios and get that mortgage approved!

How to Pay Off Your Mortgage Faster.

When it comes to homeownership, many of us dream of the day we will be mortgage-free. While most mortgages operate on a 25-year amortization schedule, there are some ways you can pay off your mortgage quicker!

1. Review Your Payment Schedule: Taking a look at your payment schedule can be an easy way to start paying down your mortgage faster, such as moving to an accelerated bi-weekly payment schedule. While this will lead to slightly higher monthly payments, the overall result is approximately one extra payment on your mortgage per calendar year. This can reduce the total amortization by multiple years, which is an effective way to whittle down your amortization faster.

2. Increase Your Mortgage Payments*: This is another fairly simple change you can execute today to start having more of an impact on your mortgage. Most lenders offer some sort of pre-payment privilege that allows you to increase your payment amount without penalty. This payment increase allowance can range from 10% to 20% payment increase from the original payment amount. If you earned a raise at work, or have come into some money, consider putting those funds right into your mortgage to help reduce your mortgage balance without you feeling like you are having to change your spending habits.

3. Make Extra Payments*: For those of you who have pre-payment privileges on your mortgage, this is a great option for paying it down faster. The extra payment option allows you to do an annual lump-sum payment of 15-20% of the original loan amount to help clear out some of your loan! Some mortgages will allow you to increase your payment by this pre-payment privilege percentage amount as well. This is another great way to utilize any extra money you may have earned, such as from a bonus at work or an inheritance.

4. Negotiate a Better Rate: Depending on whether you have a variable or a fixed mortgage, you may want to consider looking into getting a better rate to reduce your overall mortgage payments and money to interest. This is ideally done when your mortgage term is up for renewal and with rates starting to come back down, it could be a great opportunity to adjust your mortgage and save! This may be done with your existing lender OR moving to a new lender who is offering a lower rate (known as a switch and transfer).

5. Refinance to a Shorter Amortization Period: Lastly, consider the term of your mortgage. If you’re mortgage is coming up for renewal, this is a great time to look at refinancing to a shorter amortization period. While this will lead to higher monthly payments, you will be paying less interest over the life of the loan. Knowing what you can afford and how quickly you want to be mortgage-free can help you determine the best new amortization schedule.

*These options are only available for some mortgage products. Check your mortgage package or reach out to me to ensure these options are available to you and avoid any potential penalties.

If you’re looking to pay your mortgage off quicker, don’t hesitate to book a strategy call with me today! They can help review the above options and assist in choosing the most effective course of action for your situation.

What You Should Know About Mortgage Amortization.

Your mortgage amortization period is the number of years it will take you to pay off your mortgage. Depending on your choice of amortization period, it will affect how quickly you become mortgage-free as well as how much interest you pay over the lifetime of your mortgage (longer lifetime equals more interest, whereas a shorter lifetime equals less interest but also bigger payments).

Let’s start by looking at the mortgage industry benchmark amortization period. This is typically a 25-year period and is the standard that is used by majority of lenders when it comes to discussing mortgage products. It is also typically the basis for standard mortgage calculators.

While this is the standard, it is not the only option when it comes to your mortgage amortization. In fact, mortgage amortizations can be as short as 5-years and as long as 35-years!

As mentioned,  opting for a shorter amortization period will result in paying less interest overall during the life of your mortgage. Choosing this amortization schedule means you will also become mortgage-free faster and have access to your home equity sooner! However, if you choose to pay off your mortgage over a shorter time-frame, you will have higher payments per month. If your income is irregular, you are at the maximum end of your monthly budget or this is your first home, you may not benefit from a shorter amortization and having more cash flow tied up in your monthly mortgage payments.

When it comes to choosing a longer amortization period, there are definitely still advantages. The first is that you have smaller monthly mortgage payments, which can make home ownership less daunting for first-time buyers as well as free up additional monthly cash flow for other bills or endeavors. A longer amortization also has its advantages when it comes to buying a home as choosing a longer amortization period can often get you into your dream home sooner, due to utilizing standard mortgage payments versus accelerated. In some cases, with your payments happening over a longer period of time, you may also qualify for a slightly higher value mortgage than a shorter amortization depending on your situation.

I will be able to help you choose the amortization that best suits your unique requirements and ensures you have adequate cash flow. However, it is important to mention that you are not stuck with the amortization schedule you choose at the time you get your mortgage. You are able to shorten or lengthen your amortization, as well as consider making extra payments on your mortgage (if you set up pre-payment options), at a later date.

Ideally, you are re-evaluating your mortgage at renewal time (every 3, 5 or 10 years depending on your mortgage product). During renewal is a great time to review your amortization and payment schedules or make changes if they are no longer working for you.

If you have any questions or are looking to get started on purchasing a home, don’t hesitate to book a strategy call with me for expert advice!

Frequently (and not so frequently!) Asked Mortgage Questions.

New to mortgages? Have questions but not sure where to start? We have the answers!

1. What is the best interest rate I can qualify for?

   Your credit score plays a big role in the interest rate you can qualify for. The riskier you appear as a borrower, the higher your rate will be. While it is important to understand rate is NOT the most important aspect of your mortgage, it does still play a significant part. However, in some cases you may lose out on pre-payment privileges or porting options if you opt for the lowest rate. This is why it is important to look at your mortgage as a whole for your current and future needs.

2. What credit score is needed to qualify for a mortgage?

   Generally, you are considered a prime candidate for a mortgage if your credit score is 680 and above. The higher you can get above 700 the better, as you will access lower rates. While almost anyone can obtain a mortgage via traditional or private lenders, if you have a lower credit score the key will be the size of your down payment. A sufficient down payment can reduce the risk to the lender providing you with the mortgage, thereby opening up lower rate options

3. What happens if my credit score isn’t great?

   There are five main things you can do to improve a low credit score.

   • Pay down credit cards so they’re below 70% of your limits. Revolving credit like credit cards have a more significant impact on credit scores than car loans, lines of credit, or other types of debt.
   • Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this also affects your score.
   • Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other interested parties view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.
   • Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off.
   • Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.
4. What’s the maximum mortgage I can qualify for?

   To help you determine what you can afford, check out the My Mortgage Toolbox app on the iStore and Google Play. This app can assist with various calculations to determine the amount you can afford, how much your monthly mortgage payments will be, allow you to play around with payment frequencies, and so much more. You can also get pre-qualified on the app, which you can follow up with a proper mortgage pre-approval once you are ready to start shopping! This will also assist with solidifying your budget and understanding your mortgage costs.

5. How much money do I need for a down payment?

   The minimum down payment required is 5% of the purchase price of the home. However, it is ideal to produce a down payment of 20% to avoid paying mortgage default insurance and, in some cases, to access a better interest rate.

6. What happens if I don’t have the full down payment amount?

   It can be hard to put together a down payment. Fortunately, there are many programs available that will allow you to utilize different forms of down payments through cash-back products, RRSP withdrawal or gifting from an immediate family member.

7. Should I go with a fixed- or variable-rate mortgage?

   The answer to this question depends on your personal risk tolerance. If you happen to be a first-time homebuyer, or you have a set budget that you can comfortably spend on your mortgage, it’s smart to lock into a fixed mortgage with predictable payments over a specific period of time. On the other hand, if your financial situation can handle the fluctuations of a variable-rate mortgage, this may save you some money in the long run. Another option is to opt for a variable rate, but make payments based on what you would have paid if you selected a fixed rate. There are also 50/50 mortgage options that enable you to split your mortgage into both fixed and variable portions.

8. How much will my mortgage payments be?

   Your monthly mortgage payment cost will vary based on several factors, such as the size of your mortgage, whether you’re paying mortgage default insurance, your mortgage amortization, your interest rate, and your frequency of making mortgage payments. The My Mortgage Toolbox app from Google Play and the iStore has many calculators that can help you preview different mortgage and payment scenarios.

9. What amortization will work best for me?

   While the benchmark and typically used standard amortization period for a mortgage is 25-years, shorter or longer timeframes are available. The main reason to opt for a shorter amortization period is that you’ll become mortgage-free sooner. In addition, by agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is greatly reduced. A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value. While it pays to opt for a shorter amortization period, keep in mind you will have higher monthly payments as a shorter amortization period means less payments overall. If your income is irregular or you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you.

10. How can I maximize my mortgage payments and own my home sooner?

    Most mortgage products include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage). Another way to reduce the time it takes to pay off your mortgage involves changing the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. With accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year. In addition to increased payment options, most lenders offer the opportunity to make lump-sum payments on your mortgage (as much as 20% of the original borrowed amount each year).

11. Can I make lump-sum or other prepayments on my mortgage, or will I be penalized?

    Most lenders enable lump-sum payments and increased mortgage payments to a maximum amount per year. But, since each lender and product is different, it’s important to check stipulations on prepayments prior to signing your mortgage papers. Most “no frills” mortgage products offering the lowest rates often do not allow for prepayments. As well, please note that some lenders will only let you make these lump-sum payments on the anniversary date of your mortgage while others will allow you to spread out the lump-sum payments to the maximum allowable yearly amount.

12. If I have mortgage default insurance, do I need mortgage life insurance?

    Yes. Mortgage life insurance is a life insurance policy on a homeowner, which will allow your family or dependents to pay off the mortgage on the home should something tragic happen to you. Mortgage default insurance is something lenders require you to purchase to cover their own assets if you have less than a 20% down payment. Mortgage life insurance is meant to protect the family of a homeowner and not the mortgage lender itself.

13. Is my mortgage portable?

    Fixed-rate products usually have a portability option as lenders utilize a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property, and the new balance is calculated using the current rate. With variable-rate mortgages, however, porting is usually not available. This means that when breaking your existing mortgage, a three-month interest penalty will be charged. This charge may or may not be reimbursed with your new mortgage. While porting typically ensures no penalty will be charged when you sell your existing property and buy a new one, it’s best to check with your mortgage professional for specific conditions before making any changes.

14. If I want to move before my mortgage term is up, what are my options?

    This will depend greatly on your particular lender and the type of mortgage you have. While fixed mortgages are often portable, variable are not. Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day, while others offer extended periods. As long as there’s not too much time between the sale of your existing home and the purchase of the new home, as a rule of thumb most lenders will allow you to port the mortgage. In other words, you keep your existing mortgage and add the extra funds you need to buy the new house on top. The interest rate is a blend between your existing mortgage rate and the current rate at the time you require the extra money.

15. How much will I have to pay for closing costs?

    As a general rule of thumb, it’s recommended that you put aside at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs such as: property transfer taxes, lawyer/notary fee, survey costs, appraisal fee, title insurance and a home inspection.

16. How do I ensure I get the best mortgage product and rate upon renewal at the end of my term?

    The best way to ensure you receive the best mortgage product and rate at renewal is to enlist your mortgage professional to review your current mortgage product, financial situation and shop the market for you. A lot can change over a single mortgage term, and you can miss out on a lot of savings and options if you simply sign a renewal with your existing lender without consulting your mortgage professional.

17. What steps can I take to help ensure I don’t become a victim of title or mortgage fraud?

Red flags for mortgage fraud:

• You’re offered money to use your name and credit information to obtain a mortgage
• You’re encouraged to include false information on a mortgage application
• You’re asked to leave signature lines or other important areas of your mortgage application blank
• The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing
• The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution. Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes.

Ways to protect yourself from title fraud:

• Always view the property you’re purchasing in person; check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable
• Make sure your representative is a licensed real estate agent
• 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 appraised by a designated or accredited appraiser
• 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 for recent renovations; when you make a deposit, ensure your money is protected by being held “in trust”
• Consider the purchase of title insurance.

If you would like to discuss these topics, or any other questions you may have, please book a strategy call with me today!

3 Things You May Not Know About Cash-Back Mortgages.

It can get pretty exciting to see campaigns around “cash-back mortgages” but, before you get too far along, here are three things you might not know about these types of mortgages:

1. Occasionally you will see campaigns on cash-back mortgages, so don’t jump at the first one you see! These types of mortgages are available through a few major lenders so it can be helpful to shop around to see what different terms and conditions are available, as this will affect the overall loan.
2. When it comes to cash-back mortgages, you’re really getting a loan on top of your mortgage. The interest rates are calculated to ensure that, by the end of your term, you will have paid the lender back the money they gave you (and perhaps a bit extra!). Be mindful that these loans can come with higher interest rates and, in some cases, the extra is more than you got in cash-back.
3. The average cash-back mortgage operates on a 5-year term. While you may not be planning to move before your term is up, sometimes things happen and it is important to be aware that if you break a cash-back mortgage, you have to pay the standard penalty but you will also have to pay back a portion of the loan you were given. For example, if you are 3 years into a 5-year term, you would have to pay back 2 years or 40% worth of the cash-back. Combined with the standard mortgage penalties for breaking your term, this can add up if you’re not careful!

Before signing for a cash-back mortgage it’s better to book a strategy call with me to discuss your needs. I can provide advice regarding all cash-back mortgage availability, lines of credit, purchase plus improvement loans or also flex down mortgages that may be better for your situation.