Stress Test and What It Means For YOU
You have probably heard the words mortgage stress test in the news over the past couple of years and if you havent needed a new mortgage you may be wondering how this stress test may be affecting you. First of all lets break down what the stress test actually is: Contrary to popular belief the stress test isnt really that NEW, as a form of it has been in place for quite some time. Previously in fall of 2016 the government came out with the stress test for all insured mortgages, meaning mortgages with less than 20% downpayment. Then in January 2018 they rolled it out to all mortgages. Previous to 2016 the lenders had their own stress tests as well, they just werent as steep as the current stress test. Today, November 2019, the stress test is 5.19%. The current 5 year fixed rate is at 2.79%. What this means is that; if you got a mortgage today you would be paying your mortgage based on 2.79% but have to qualify for that mortgage by being able the carry that mortgage as if that rate was 5.19%. In turn this reduces your maximum borrowing power by about 20%. If you are looking to refinance or purchase a new home you will need to qualify based on the new stress test requirements. At this time the stress test only applies to NEW mortgages, so if you renew your mortgage with the same lender or had your mortgage before the 2016 rule changes then the stress test is not applied. Its important you work with a mortgage professionalthat can help you understand thecomplicated world of mortgage financing and make sure you are reaching your financial goals. Thats where I come in! Call or email me, Im always happy to help. Caily MacGregor, Accredited Mortgage Professional firstname.lastname@example.orgREAD MORE
Mortgage Strategy: Being Able To Afford Your Dream Home
Most first time buyers have been previously renting or living at home, so buying their first home means having to become accustomed to paying their mortgage and all of the added expenses that come with homeownership (Visit my Blog: Calling All First Time Buyers- Dont Become House Poor).With that said, your next home isnt really front of mind until you decide its time to move. So how are first time buyers preparing themselves to be able to afford their next home? I have a strategy that I have share with my clients that, when used, can really make purchasing a dream home a reality. Heres the strategy: DISCLAIMER:Please keep in mind I live in Winnipeg, Manitoba where we see a steady 1-2% increase in house prices year over year, we have in my opinion, one of the most consistent, affordable, steady markets across Canada. So the numbers I am using are based on this particular market. I am using an interest rate of 3.44% as its just a rate I used to derive a payment and is not best rate today (April 17, 2019). By the way my next blog post will be why its important we need to stop talking about rate (stay turned). The example Im using is a $250,000purchase with 5% downpayment, mortgage payments are based on 3.44% over a 25 year amortization is$624.95 accelerated bi-weekly payments(pays off your mortgage 2 years sooner). In my experience most first time buyers are ready to move up around the 5 year markso I am using that as the timeframe. My strategy is simple, use the lenders pre-payment privileges to create more equity and pay less in interest costs. By increasing your payment you will also limit your payment shock when moving to your next home. Heres the breakdown: A lot of lenders will allow you to increase your mortgage payment up to 20% for no fee. If your mortgage payment is $624 you can add $125 to each mortgage payment, which will make your new payment $749 bi-weekly. That and extra $3000 you are paying your mortgage down per year and $15,000 over the 5 year term. Not only did you just increase the equity in your home but over a 5 year term alone you are saving $3000 in interest costs ($26,389 over the 25 year period). Mortgage Payoff Summary Original loan amount $251,900.00 Original mortgage amortization 25 Years Interest rate 3.44% Normal payment (PI) $624.85 accelerated bi-weekly Additional payment $125.00 bi-weekly Prepayment savings $26,389.37 over 25 yrs *Assuming the interest rate does not change during the amortization period. Payment schedule Regular Payment Schedule Prepayment Payment Schedule Yr Total Payments Interest Paid Ending Principal Balance Total Payments Interest Paid Ending Principal Balance $251,900.00 $251,900.00 1 $16,246.10 $8,470.49 $244,124.39 $19,496.10 $8,416.60 $240,820.50 2 $16,246.10 $8,200.71 $236,079.00 $19,496.10 $8,032.16 $229,356.56 3 $16,246.10 $7,921.58 $227,754.48 $19,496.10 $7,634.40 $217,494.86 4 $16,246.10 $7,632.75 $219,141.13 $19,496.10 $7,222.87 $205,221.63 5 $16,246.10 $7,333.87 $210,228.90 $19,496.10 $6,797.04 $192,522.57 6 $16,246.10 $7,024.67 $201,007.47 $19,496.10 $6,356.46 $179,382.93 7 $16,246.10 $6,704.70 $191,466.07 $19,496.10 $5,900.54 $165,787.37 8 $16,246.10 $6,373.66 $181,593.63 $19,496.10 $5,428.82 $151,720.09 9 $16,246.10 $6,031.14 $171,378.67 $19,496.10 $4,940.75 $137,164.74 10 $16,246.10 $5,676.74 $160,809.31 $19,496.10 $4,435.74 $122,104.38 11 $16,246.10 $5,310.05 $149,873.26 $19,496.10 $3,913.25 $106,521.53 12 $16,246.10 $4,930.55 $138,557.71 $19,496.10 $3,372.54 $90,397.97 13 $16,246.10 $4,537.94 $126,849.55 $19,496.10 $2,813.16 $73,715.03 14 $16,246.10 $4,131.74 $114,735.19 $19,496.10 $2,234.30 $56,453.23 15 $16,246.10 $3,711.44 $102,200.53 $19,496.10 $1,635.41 $38,592.54 16 $16,246.10 $3,276.54 $89,230.97 $19,496.10 $1,015.70 $20,112.14 17 $16,246.10 $2,826.55 $75,811.42 $19,496.10 $374.51 $990.55 18 $16,246.10 $2,360.93 $61,926.25 $992.17 $1.62 $0.00 19 $16,246.10 $1,879.18 $47,559.33 $0.00 $0.00 $0.00 20 $16,246.10 $1,380.71 $32,693.94 $0.00 $0.00 $0.00 21 $16,246.10 $864.95 $17,312.79 $0.00 $0.00 $0.00 22 $16,246.10 $331.29 $1,397.98 $0.00 $0.00 $0.00 23 $1,401.04 $3.06 $0.00 $0.00 $0.00 $0.00 24 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Now lets take into account that Manitoba has a steady 2% increase in house prices year over year for the past few DECADESso its reasonable to say that your $250,000 home would be closer to $275,000 in 5 years time. So in 5 years time you could potentially have close to $83,000 in equity for the purchase of a new house. So lets look at a new purchase and what this could mean so we can talk about the bonus of doing this strategy- Avoiding payment shock! Net sale proceeds(no mortgage penalty for this example) $83,000 Sale Proceeds *sale price of $275,000 $1,000 Legals $12,000 Estimated real estate fees $500 Estimated discharge fee for you current mortgage $69,500 Net Sale proceeds New purchase $425,000 Purchase Price 59,000 Downpayment from sale proceeds $10,500 Closing costs (estimated) from sale proceeds *No cash out of pocket for the new purchase $864 New payment (non accelerated payment/ using same interest rate) $749 Old payment accelerated with extra payments $114 Difference in payment bi-weekly If you did notincrease your mortgage $125 your payments would have been $624 bi-weekly and your downpayment would have been $41,000 compared to 59,000. The difference between your old payment and your your new payments would be $289 bi-weekly THATS A DIFFERENCE OF $22,750 over a 5 year term! By add$125 to your bi-weeklypayment you not only got yourself into a $425,000 home in 5 years but also your lifestyle will remaining the same as your payments will be relatively close to what you were used to paying over the past 5 years. After reading all of this you may be questioning just how you could free up $125 bi-weekly in order to increase your mortgage payments. Not to worry, my next blog will cover this!READ MORE
$5000 First Time Home Buyer Tax Credit
The First Time Homebuyers Tax Credit is available for qualifying first time homebuyers who purchased a home after January 27, 2009. You can claim an amount of$5,000 for the Home Buyers Tax Credit (HBTC) 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 home you acquired must be located in Canada and includes existing homes and new construction. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, as well as condos all qualify. The home must be owner occupied as a principal residence no later than one year after it is acquired. You dont have to submit documents supporting your purchase transaction with your income tax and benefit return, but you must make sure this information is available if Revenue Canada requests it. Note this is a non-refundable tax credit. If the total of your non-refundable tax credits is more than your federal income tax, you will not receive a refund. For more information, please visitFirst Time Homebuyers Tax Credit. Source www.onelinkmortgage.comREAD MORE
Why you should know what a MONOLINE lender is...
Monoline Lender Definition: Monoline lenders (aka non-deposit-taking lenders) are an important cog in the mortgage market. Their mortgage products andlow pricing improve consumer choice and force our dominant banks to be more competitive. Being a part of VERICO One Link Mortgage I have access to over 50 different lenders which include banks, credit unions, monoline lenders, alternative lenders, and private lenders. As the largest mortgage brokerage in Manitoba along with being a part of our national network VERICO, I am able to offer the most competitive mortgage rates. The lowest rates we advertise are often offered by Monolines. Some reasons for that are the fact they strictly do residential mortgages and have low overhead costs. So why do people ultimately choose a monoline? Frequently Asked Questions: Q: Are there any risks to deal with a Monoline? A: No, there really arent any. Monolines are regulated by the federal government just like the major banks so they must follow similar lending guidelines and regulations. Fun fact, many Monolines receive their funding from major banks! Q: What if a Monoline decided to leave the market place? A: Another lender would take over their mortgages and the terms and conditions of their existing mortgage stays intact. A great example is a company I used to work for, FirstLine Mortgages, they decided to leave the marketplace and CIBC took over their book of business and services all of those mortgages. Q: What are some other benefits to using a Monoline than just a low rate? A: Well monolines typically have smaller penalties in the event you have to break your mortgage, pre-payment options that are typically better than the banks, monolines register a standard charge term on the title of your property which allows you to move to any lender once your term is up to take advantage of the best rates on the market. Banks and credit unions tend to register collateral charges which would make you incur legal fees to transfer your mortgage at the end of the term. Here are some advantages of monoline lenders: They focus on one line of business: mortgages. This allows them to focus on providing the best possible mortgage products No bricks and mortar buildings, they are virtual banks essentially, making their overhead costs lower passing on savings to the consumers. The mortgage industry is heavily regulated by the government now more than ever, so whether youre dealing with a major bank or monoline lender they are subject to satisfying the same guidelines for qualifying and approving customers. Mortgages are registered on title as a standard charge and not collateral charge which means you can transfer the mortgage to another lender at the end of the term without incurring legal fees (providing there isnt a 2nd mortgage and/or secured line of credit on title) Rates are often lower than the major banks (no posted rates like the banks) which typically result in a lower penalty should the mortgage be discharged prior to the end of the term. Fun Fact; the average a Canadian is in their mortgage for is 3 years. Really good pre-payment options available They also offer online access to your mortgage as well as customer service departments to take on telephone inquiries. I always tell my clients to contact me for any mortgage questions and I will be able to help OR lead you in the right direction. Most of the time I can have a client consent form signed by the borrowers and deal with the lender on my clients behalf. Some disadvantages people have expressed to me over the years would be that some people physically like to walk into their bank and speak to someone. My solution for that is my office is always open to my clients to speak about their mortgages and better yet I can be reached outside of regularbank hours. The other comments I have had arepeople like to have everything in one placewhich is completely understandable, however, if you can get a better rate and mortgage product elsewhere does it become as important if youre saving money? As a broker it is my job to make sure my clients pay the least amount of money over the term of their mortgage and for years after that. Every circumstance is different and I make sure I evaluate every clients needs and make recommendations oflenders based on their needs, most often it is a monoline lender. Fun Fact, I have my own mortgage with a monoline. *Some monoline lenders I use; MCAP, RMG, First National, Merix, Lendwise, LifeCycle, CMLS, and Radius. -CailyREAD MORE
Calling All First Time Homebuyers- Don't Become House Poor!
When looking to purchase a home, two of the most common questions Im asked are, 1) Whats the best rate? and 2) How much do I qualify for? Ill address number one in my next blog post but for now Id like to focus on number two. As a first time homebuyer, theres never any harm finding out how much you qualify for. With todays stress test used qualify mortgages at a rate almost double what youre actually paying and prudent underwriting requirements, your max purchase price may be what youre looking to spend anyway. HOWEVER, just because you qualify for that amount doesnt mean youre going to want to spend it. What I like to do is let you know what you qualify for and how much the associated payments will be. Then I ask how much are you willing to pay monthly? for your mortgage and other monthly homeownership costs. A lot of first time buyers will then take a different approach to how much they actually can afford. You dont want to end up being house poor. You want to be able to go out for a couple patio drinks with friends on a Friday after work or play on your rec sports team without going into debt. Life is all about balance. So lets break down the fixed monthly expenses you can expect when buying a house. 1) Mortgage principal and interest payment 2) Property tax (you can deduct $700 from the gross taxes for you primary residence) 3) Life/Disability insurance (the younger you are the cheaper it is) 4) Utilities: Hydro/Gas, Water, Cable/Internet 5) Property insurance When first time buyers get a mortgage payment quoted to them, that payment is just your principal and interest mortgage payment, it doesnt include all of the other expenses a house brings. So using a real example; Purchase Price $300,000.00 Min Down payment (5%) $15,000.00 Estimated Closing Costs (2%) $6,000.00 Payment $1,343.00 Extras Estimate** $760.00 ** Extras Include: CABLE $120.00 HYDRO $200.00 WATER $30.00 PROPERTY TAX $260.00 LIFE INSURANCE $50.00 PROPERTY INS $100.00 NOTE: this is just an example and will fluctuate depending on house and area but is a good guideline. This example is a good indicator of what types of extra expenses are included in a house that may have been overseen. Make sure you work with a mortgage professional to help you figure out what is manageable for you so you dont find yourself house poor. Cheers! CailyREAD MORE
Are These Professionals In Your Life? If Not It Could Cost You!
Aside from having professionals like your family doctor and dentist you see once a year, it is very important to have people you trust working for you. People you can phone and pick up right where you left off whether its been 1 month or 5 years. Most professionals work on a commission basis or earn money based on making you happy or continually bringing you benefit. A good professional will keep you up to date and have your best interest front of mind with any transaction you need. Professionals in your life not only help save you thousands of dollars but also help you sleep easier knowing you and your family are being looked after. Here are some professionals you should have in your life; 1) Mortgage Broker- Mortgages are the largest debt you will take on in your life. They are very complex especially with constant changes happening in the industry. You need someone who focuses on mortgages day in and day out knowing which mortgage products are best suited for you so you dont incur large penalties down the road. Mortgage professionals can help you achieve your goals of homeownership and becoming mortgage free faster. Best of all, mortgage broker services are free! 2) Financial Planner- Who wants to retire when theyre 80?! Having a financial planner working with you as early in your life as possible will really help you understand the value of saving early. Financial planners not only help you reach retirement goals, they can help save money on taxes through RRSPs. Theyre also licensed life insurance agents to ensure you are fully covered incase something unfortunate happens. They make a good chunk of their money off commissions, so when you do well, they do well. 3) Realtor- I cant stress enough the importance of using a realtor, especially when you are a first time buyer. It doesnt cost you anything and their opinion on the house, location, resale value are invaluable when everything is so new to you. A realtor is there to represent you and your best interests. They have access to multiple marketing sites and also have valuable information about comparables to ensure you dont over pay when buying and to price your house right to sell it quickly, maybe even receive multiple offers. Working with a realtor you trust is an important asset to you. If youre buying a home using a realtor is no cost to you. 4) Insurance Broker- Who gets home insurance and reads it thoroughly to make sure everything you possibly need to be insured for is insured? I know I dont. Its important to have low insurance payments but its even more important to make sure youre being covered for what you need. Insurance agents are commission based, working with a trusted advisor can help save you time knowing they are looking for the best coverage and premium for your needs. 5) Lawyer- There are 2 types of lawyers I would suggest working with. 1) Family lawyer: these lawyers will help set up wills and amend wills 2) Real Estate Lawyer: some lawyers are well versed in family and real estate law but if you have a lawyer that isnt actively participating regularly in real estate I would strongly suggest you find a lawyer that is. There are many mortgage lenders in the industry, from monolines to banks to credit unions to private lenders and each lender is unique. The documentation a lawyer is required to produce for some monoline lenders is heavier than some traditional lenders but that monoline may offer a better mortgage for you. If youre using a lawyer that isnt familiar with the paper and processes of certain lenders it could end up costing you more in the end for the extra time and efforts the lawyers need to process your mortgage. 6) Accountant- For salaried and hourly people this isnt as important but once you have some fluctuating income, youre a sales person, or business for self, it is very important you have an accountant that makes sure your is are dotted and your ts are crossed. They could save you a ton of money in the end not to mention if CRA comes knocking you want to be sure you have a professional behind you that did your taxes. 7) Health and Fitness professional- You wont need any of the above for a very long time if you dont take care of yourself. In my mind if you dont have your health then your life isnt going to be enjoyable. Whether its walking, running, going to the gym, playing sports, personal training, crossfitting; whatever it is, spend that little extra money each year to make your health a priority. Having a nutritionist and massage therapist isnt the worst thing either. A lot of employees have benefits, which include a certain dollar amount for health each year. I have seen some companies pay for healthy related things like gym memberships, hockey registrations, nutritionist consultations, and massages. So, if you have benefits, make sure youre using them! 8) Car Repair Shop- I dont know a lot of people who enjoy taking their car in to get fixed. Personally I know nothing about cars but I do know when I call my car shop they know me by my first name and dont even have to look up the car Im driving. When I take my car in they could be speaking gibberish to me but because I have someone I trust isnt taking advantage of me and will fix my car right and quickly, I can hand over my keys feeling a little less stressed. Written by Caily MacGregor, AMPREAD MORE