Mortgage Basics- Mortgage Types and Penalties

General Pam Pikkert 5 Sep

Mortgage Basics- Mortgage Types and Penalties

 

This week we continue with our mortgage basics series. It is a good idea to revisit the basics when looking at a complex thing like a mortgage.  There can be misunderstandings which crop up.   The mortgage process can be very stressful as you wait for some anonymous entity top decide whether or not you are able to buy the home of your dreams.  It is no wonder that things can get missed.  Fear not!  We will take a look at some of the basics so you can avoid things best avoided.

There are 3 types of mortgages in Canada so we will take a look at each in detail so you can decide which the best is for you and your situation.

  1. Fixed Rate – You can choose anywhere from a 6 month through a 10 year term. The term is generally a piece of the larger amortization of your mortgage.   The longer period is called the amortization and in most cases is a max of 25 years.   Choosing the fixed rate gives you the peace of mind that you know exactly what your mortgage payments will be for that time.  Most of people choose the 5 year which is interesting as the average mortgage in Canada is broken at 38 months.  The penalty for breaking a fixed rate mortgage is either 3 months interest or the Interest Rate Differential, whichever is greater.

Each bank and mortgage provider is required to inform you at the time you accept the mortgage of how they calculate their penalties.  In my experience, there is a significant difference between them.  It is your responsibility to acquaint yourself with your chosen mortgage provider as to what their policy is.  I have long maintained that banks are a business with the mandate of making money and that is a good thing overall.   The good thing is that you are often able to port this mortgage with you to a new property without penalty.

 

  1. Variable or Adjustable Rate – The variable rate is where your interest rate is based on the prime lending rate with either an ongoing premium or discount. As of today the prime lending rate is 2.95% and the ongoing rate discount is averaging at -.40% which makes your interest rate 2.55%.  The prime lending rate can and does fluctuate.  It is set by the Bank of Canada who meet 4 times a year.  Your mortgage payments can increase or decrease according to the decisions made.  A common misconception with the variable rate is that it is open or without penalty if it is broken and that is not the case.  Most of the time the penalty is 3 months interest.  Another consideration for the variable is that it is generally not portable to take with you to another property.  Many people prefer the stability of the fixed rate though if you were to do a look back you would see that variable rates have historically proven to be the best way to save money in the long term.  You are fully able to change your variable rate into a fixed rate without penalty.

 

  1. Home equity lines of Credit – An interesting misconception I have run into is that a home equity line of credit is not in fact a mortgage. If a loan has been secured against your property, you my friend have a mortgage.  The advantages of the HELOC is that you do not pay any interest unless you carry a balance, you can make interest only payments and that you can pay it out in full at any time without penalty.  The downside is that if you are not careful and manage your finances well, you will owe the exact same amount in 25 years that you did at the beginning.   The interest rate on the HELOC will depend on your overall credit and generally set at a prime plus a percentage.   The government made some change a ways back and the maximum HELOC you can have is 65% of the appraised value of your home.  You cannot port a HELOC from one property to another and this type of a mortgage allows you to change it to a fixed or variable or a combination of all 3 with some lenders.

 

And there you have mortgage types available to you here in the great white north.

Mortgage Basics to keep you in the Know – Property Taxes

General Pam Pikkert 25 Aug

Mortgage Basics to keep you in the Know – Property Taxes

Sometimes it is a good idea to revisit the basics when looking at a complex thing like a mortgage.  There can be misunderstandings which crop up.   The mortgage process can be very stressful as you wait for some anonymous entity top decide whether or not you are able to buy the home of your dreams.  It is no wonder that things can get missed.  Fear not!  We will take a look at some of the basics so you can avoid things best avoided.

Property Taxes – There are 3 ways to pay the property taxes.

  1. Have your mortgage company collect them with your mortgage payment. This can be a nice way to keep the withdrawals from your account to a minimum.  The taxes are collected at the same time as your mortgage payment and remitted to the municipality on your behalf.  Your property tax bill will still be sent to you but it will clearly show that the taxes have been paid by the mortgage company.  Things to make note of: some banks charge a fee for this service which could be avoided if you chose a different option.
  2. TIPPS or the Tax Installment Program Payment System – Most municipalities allow you to sign up for free for the program. Generally an amount of 1/12 of the tax amount is withdrawn from your bank account on the last business day of the month.  Your property tax bill will come to you showing that you have opted in to the TIPPS program.  Depending what time of year you took possession of the home the amount can reflect a balance owing or a tax credit but you can rest assured that you are OK and will not have to come up with a large amount at the end of the year.
  3. Lump Sum – You can make a once a year payment to the municipality. This is not ideal for everyone as it requires you to come up with a large amount of funds. Your tax bill will show clearly that the funds are outstanding.

What else should you know about property taxes?

  1. Tax Adjustment – Depending on the time of year that you are purchasing your home, you may have to reimburse the seller if they have pre-paid the taxes for the year. This is why you are required to have an extra 1.5% of the purchase price available for closing costs.   Your lawyer will be the one to determine this and if you opt for the TIPPS program you can avoid the extra lump sum all together.
  2. You have to pay your taxes. We all know that but you should know what happens if you do not.  First of all you will begin to incur penalties and extra fees.  Then they can put a tax lien on the title and finally they can seize the property and sell it.   Mortgage lenders have the legal right to ask for verification that your property taxes are being paid.  Should they discover you have not done so, they will charge you a fee and take over the payment of the property taxes.  At that time they will collect a monthly amount from you to cover the past due and the amount owing going forward.  Taxes trump mortgages and the bank could lose out if the property was siezed.   It can be very hard to get a mortgage if you have a tax lien.  Lenders tend to shy away from this scenario.
  3. It is not always up to you. Given the issues raised in the previous point, many banks will not allow to you to choose the yearly option.  They require verification that you are on the TIPPS program or have the taxes included in the mortgage

I strongly recommend that after your mortgage funds you contact the mortgage company and confirm that you are set up the way you wanted.  I have witnessed a few cases where things went sideways and all of a sudden people had to pay double property taxes for a year until they were caught up.

And now you know how to navigate property taxes like a pro.

What does the future hold for mortgages?

General Pam Pikkert 4 Aug

 

There have been a dizzying number of changes to the mortgage rules over the last 6 or 7 years.  The red hot markets in Toronto and Vancouver coupled with increased household debt and concerns over the risk to the Canadian tax payer through CMHC have caused the federal government to step in repeatedly.  Here are a few of the changes we have seen.

  • Maximum amortization from 40 years to 25 years.
  • Mortgages must qualify on the stress test rate which is currently 4.84%.
  • Homes over $500,000 need 10% down on any amount over that threshold.
  • Homes over $1,000,000 are not eligible for mortgage insurance.
  • Refinances can no longer be guaranteed by mortgage default insurance.
  • Foreign buyers faced additional restrictions.
  • Home Equity Lines of Credit are maxed at 65% of the property’s value.
  • Refinances are maxed at 80%.
  • All outstanding credit cards and lines of credit have to be included at a 3% repayment.
  • Increased mortgage default insurance premiums.

This list could go on but these are some of the major ones.   Recently the powers that be have announced another round of proposed changes which, if history holds true, we would anticipate to come into existence in October of this year.

  1. The overall indebtedness of Canadian households through Home Equity Lines of Credit is a concern which may signal a further set of limitations to this type of mortgage.
  2. There is consideration being given to a risk sharing model between the mortgage insurers and the banks. At the present time if you were to default on your mortgage the lender has the assurance that the default insurance will make them whole.  Going forward this may not be the case.

How could you be affected?  There will likely be an increased level of scrutiny applied to mortgage applications.  If your credit is blemished or less than perfect you could face higher rates or be shut out of buying a home.  They will likely also want to see savings beyond just the down payment and closing costs.

The fact of the matter is that if a bank has an increased risk overall they are going to certainly be more selective in who they lend their money to.  The days of the best 5 year rate for everyone may be a thing of the past.

  1. Currently there are lenders in Canada who charge slightly higher rates and make allowances for damaged credit, short self-employment tenure or other issues a borrower may be facing. Though these companies have nowhere near the lose lending guidelines in the US which led to the melt down, the government would like all lenders in Canada to abide by the same guidelines and looking at ways to bring this into reality.

We will have to wait and see if these or other changes are actually implemented. It is fair to say that until the government is satisfied the housing sector no longer poses a threat to the economy, it will remain at risk of further changes.   Long story short, if you are considering purchasing then you may want to proceed sooner rather than later.  Rates have risen recently and there is uncertainty over the future of mortgages.  Call a well-qualified mortgage professional today for assistance.

Is the Bank of Canada signalling that more mortgage rule changes are coming?

The Language of Mortgages

General Pam Pikkert 31 Jul

 

Applying for a mortgage can be very stressful to say the least.  It seems as though your hopes and dreams are held hostage to rules set by people you don’t know and your paperwork adjudicated by seemingly unreasonable nameless faces.  To make matters worse you are hit with a whole bunch of new words which hold all kinds of significance.  So let’s get rid of that piece of worry and look at the common words and phrases you will be hit with.

Mortgage Qualifying Rate – Last year a change was made to how mortgages are qualified.   The bank have to use a rate of 4.84% for qualification purposes.  Interest rates are very low and we know they will climb.  The intent is to ensure Canadians are able to handle that increase.

High Ratio – Mortgages which are loaned at higher that 80% of the property’s value.

Conventional – Mortgages at less than 80% of the property’s value.

Affordability Ratios – When all your existing debts, the proposed mortgage, property taxes and heating costs are calculated against your income, percentages are generated.  They cannot be above certain levels.

Mortgage Default Insurance – If you are purchasing as home with less than 20% down you will have to pay this to CMHC, Genworth or CG.  It is a guarantee to the mortgage lender that if you default that these companies will make the mortgage lender whole by paying out the costs not covered through the sale of the home.

Term – You can choose anything from a 6 month to a 10 year mortgage.  Rates will differ greatly.  At the end of said term you will renegotiate with your current lender or move to a new bank.

Amortization – This is the term used for how long you take the mortgage all together.  In most cases the maximum is 25 years but some conventional mortgages can go up to 30.

Title Insurance – Another type of insurance required by most banks.  If there is a defect such as a garage being situated incorrectly, the title insurance company will attempt to get the city to allow it or in the worst case, cover the costs associated to make the necessary changes.

Fixed Rate – A mortgage rate which is set for the entire term of the mortgage.

Variable Rate – This rate is set as prime plus/minus for the term of the mortgage.  It can fluctuate as the Bank of Canada makes changes to the prime lending rate.

Closed – Most mortgages are closed which means if you break the contract you will pay a penalty.  This applies to fixed and variable

Open – This mortgage is completely open for prepayment without penalty.

Property Tax adjustment – If the person you are buying from has prepaid the property taxes you will be required to pay them back for this amount.  This is collected from you at the lawyer’s office.

Interest Adjustment Date – If you are taking possession of your home any day other than the first of the month you will have to pay the interest portion to the lender which is calculated per day starting on the day of possession through to your first payment.   This can be an extra payment taken from your account or collected at the lawyer’s office

Condition of Financing Date – The day you have to provide the all clear to the seller – This should never be done before you have assurance from the bank that they are satisfied.  It is imperative that you make no material changes to your financial picture from this date through funding.  You approval can be cancelled if you do leaving you in breach of contract.

Closing Date – The date the mortgage is set to fund.

Prepayment Penalty- If you break a closed mortgage there will be a penalty. Contact your mortgage provider to get the exact amount.

Prepayment Privilege – You can prepay your mortgage, usually up 10-20% of the principle amount each year.

Porting – You can take your mortgage with you to a new property to avoid penalties and preserve your rate.  You will have to fully qualify again.

 

So there you have it, a plethora of mortgage terms so that you can decipher the strange new world you will find yourself in during the process.  Until next time!

Are you Financially Ready for Homeownership?

General Pam Pikkert 24 Jul



Canadians are firm believers in homeownership.  We see the long term benefits of paying down our own mortgage as compared to a landlords.  Our homes become our largest assets and often factor into retirement planning. Here are a series of the extra costs you should consider before writing that offer.

Down Payment and Closing costs: The minimum down payment you have to have is 5%.  In the case of a $300,000 home that is $15,000.  If you are purchasing a home over $500,000 the down payment minimum increases.   On top of that you have to have 1.5% of the purchase price for closing costs.  In this case that is an additional $4500.  This will cover things like the legal fees, title insurance, tax adjustment and all the other expenses which you will incur just to get the mortgage to fund.  Banks these days really like to see some additional savings in case of anything adverse.  Ideally you will have 10% of the purchase price in your account to demonstrate you are indeed ready.

Insurance: One cost few people account for is life, disability, critical illness and job loss insurance.
Life: There is a 100% chance that we are all going to die at some point.  You need to make sure your loved ones are protected for this eventuality.
Disability: Disability is the number one reason of foreclosure in Canada so again you owe it to yourself to ensure your home is protected in case of this.
Critical Illness: We have an amazing health care system here but even so there are significant costs if you are diagnosed with a life threatening disease.    Sadly we all know too many people who have been laid low by serious illness to allow ourselves to naively assume it will never happen to us.  Critical illness insurance covers you in case of a life threatening illness.
Job Loss: Albertans more than most know how quickly the economy can turn and we can unexpectedly face a job loss.  There is now an insurance policy to protect you against that too.

Family coverage: You may want to consider insuring your children.   A serious illness in a child can drop your income by half as one person ends up leaving work to take care of them.  Of course there are the extra expenses while treatment is sought.  In the case of the unimaginable, insurance allows you to cover costs and take some time from work.  Even if your spouse does not work, having coverage for them should be considered.  If you all of a sudden have to cover costs of child care your savings can dry up quickly

I am often told that people have sufficient coverage through employer but I respectfully challenge this.  Most employers cover only one year’s salary and given how many Albertans lost their jobs in the last downturn this is clearly not a failsafe system.  If you have a change in your health it can be very difficult to get coverage down the line.  I am a big fan of third party insurance providers.  Ones which are tied neither to your mortgage lender nor your employer.

Home upkeep and other monthly expenses: The other costs you have to be ready for is the upkeep of said home.  Are your able to handle the upkeep day to day or the larger expenses like a new furnace or hot water heater?    I can assure you that when it is minus 35 you are going to need that furnace to work.    You will now be responsible for property taxes and home insurance.  Budget them in ahead of time.

Increase to mortgage payments: Another important consideration is the mortgage itself.  At the end of the mortgage term you will sign into a new term.  The rate may be considerably higher which in turn increase your mortgage payments.  Look carefully at your budget and do some forecasting to make sure you will be able to afford the mortgage payments if rates increase.

Some serious points of consideration for the smart Canadian here today.  A home is the biggest asset and a mortgage the largest debt most of us will take on.  Let’s make sure we are ready because we all know too many people life hit unexpectedly and wouldn’t you rather be ready than regretful?

Time to Be Heard Canada!

General Pam Pikkert 10 Jul

I met with a client recently who wanted to get a pre-approval before he sold his home.  His neighbor is a very grouchy man who causes my client and his family a lot of stress.  He just wanted to sell his home and move into a new one away from this situation.  I had to tell him no and explain that although he has good credit and a very stable job he does not qualify under the new rules.  He was saddened to hear that and is now faced with a decision of should he stay and put up with the situation or should he rent out his home and then he himself rent somewhere else.                   (Thank you, sir, for allowing your story to be shared)

What happened to cause this??  Late last year the federal government made another round of changes to the mortgage rules.  This was after we have already seen numerous previous rule changes over the last 7 years.   They dramatically increased the qualification rate with the intention that people be able to handle a higher mortgage payment when rates start to rise.   They were also attempting to cool the hot real estate markets in Vancouver and BC.  Additionally, they changed which properties can be insured which has meant that people with more than 20% equity in their homes have fewer choices of mortgage lenders and/or higher rates. Since that time, they have also increased the mortgage default insurance premium and tightened up lending guidelines.  Before the dust has settled on those changes we have been told that further changes are under consideration.

Here is what we need from you.  If you or someone you know have been adversely affected by the mortgage rule changes we need you to speak up.  Let’s take our freedom of speech for a spin and let our MP’s know of how specific Canadians are being negatively impacted.  TELLYOURMP.CA is the site set up that you can easily visit and share your story.  Maybe you were turned down or unable to buy a home large enough or in a safe community for your family.  Maybe a job loss or divorce means you are looking to purchase on a single income.  Whatever the case, please speak up.  Visit this website, write a letter, call your MP.

They are doing their best to keep the Canadian economy as strong as it can be but we are seeing a lot of unintentional negative consequences and good Canadians in ALL of Canada are being adversely affected.

TELLYOURMP.CA  It will not take you long and it goes directly to your MP.   We your mortgage industry, the banks and mortgage lenders are on record but they need to hear from the actual Canadians this is touching most.  Tell your story and don’t spare the details. Speak now in regards to the fallout from the last round of changes and ask for a cooling period before any further changes are implemented.  Ask they consult with the wider financial community for input.  We need all of you.  Whether you are a first-time home buyer, unable to refinance to the best rates, can not buy that next home you wanted, saw someone you care about be turned down OR if you are a part of an industry adversely affected.   Let’s get noisy Canada!!

 

Reverse Mortgages – Maybe not as evil as you thought

General Pam Pikkert 26 Jun

Reverse Mortgages – Maybe not as evil as you thought

The best part of writing about mortgages is that I get the chance to educate people about a topic which I find endlessly interesting.  Reverse mortgages are certainly a topic which deserves some consideration.  Everyone seems to be quite polarized over this issue so it seems it is past time we took a closer look.

Imagine the following scenarios:

  1. Bob receives a CPP and OAS and a small work pension. His fridge has died but all of Bob’s credit facilities are maxed and he has been declined for additional credit.
  2. Sue needs to put her husband Joe into long term care but the cost is much higher than they anticipated and she knows their savings will not last long.
  3. Mary and Bill want to purchase a property in Arizona so they can enjoy the warmer weather.
  4. Steve wants to be able to use the equity in his home to purchase a rental property so he has additional cash flow
  5. Eveline recently saw an increase in her living expenses and cannot make the ends meet.
  6. Cyrill and his wife would like to gift the inheritance to the kids while they are able to watch them enjoy it.

So you get the idea.  There are many situations that a person may benefit from having a reverse mortgage.  The extra funds could help them through a tough spot or allow the freedom extra funds can offer.

Here in a nutshell are the facts.

  • There is only one provider of reverse mortgages in Canada and they are regulated by the Federal government like any other bank.
  • They have been around for 30 years.
  • You remain the owner of the home, not the bank.
  • Unlike a regular mortgage, you do not need to qualify based on income.
  • The goal is equity preservation. They want you to have the same equity in your home at the end as you do now.
  • NO payments are required as long as you still live in the home though you can if you like.
  • The rates are not horrible and the only fees you pay are $1495 for the closing costs, an appraisal and the fee for independent legal advice.
  • The amount you can borrow is based on your age, location, property type and the value of the home.
  • The money can be taken as a lump sum or month by month, whichever suits you better and it can be used for whatever you like though there is due diligence to protect you.
  • If you are survived by your spouse they can remain in the home payment free.
  • Tax arrears, OPD, bankruptcies can all be paid from the proceeds.
  • Your family is welcome to ask their questions to protect your interests and the mortgage company knows that you want to have something to leave the kids, they will help you achieve that goal.

As always you should speak with a qualified mortgage professional.  My hope is that you may have seen that a reverse mortgage is not an evil entity designed to take your home but instead should be viewed as just another tool available to you.

Call me or visit https://www.chip.ca/

To Port or Not to Port Your Mortgage

General Pam Pikkert 10 Jun

To Port or Not to Port Your Mortgage

So you find yourself looking to move for whatever reason.  Maybe you and the neighbours have become the Hatfield’s and McCoy’s or maybe your dream home has come available.  Whatever the situation, when you find yourself considering a move, I hope you will remember this article and the sage advice it offers and save yourself some money.  It is your money after all so you really should keep as much of it as you possibly can.

The first thing to consider is the mortgage penalty.  Before you list your home you would be very smart to call your current mortgage provider and find out exactly what your penalty will be.  There is no set rule as to how lenders have to calculate this amount and it does vary greatly from bank to bank.

The second thing to consider is the mortgage insurance premium.  If you purchased your home with less than 20% down you will have paid the mortgage default insurance premium.   If you do not have 20% down for the new home you will be looking at incurring this cost again.  If you port, you will only pay on the new funds you are borrowing.

Let’s look at this in real dollars so you get an idea what we are talking about.  Here is the story of Joe and Joanna.

They bought the current home for $300,000 with 5% down.  The mortgage was a 5 year fixed rate at 3.09% over 25 years.  They paid an insurance premium of 3.60% or $10,260 which was added to the mortgage making the total loan $295,260.  After 3 years and 5 months they owe about $269,225.  They did some work to the house so they can sell for $350,000.  That gives them $80,775 less Realtor fees and legal fees.   The new home is $400,000 and they go online and figure out the payments at the low rates of today.    The payments are affordable and they are ready to go.  But wait!  There is a lot more to consider.

Depending on where they got their mortgage in the first place, that penalty to break the contract to take the new low rate can vary between $2,423 and $6,461 based on the lender.  (Hopefully you did your research the first time around to make sure you are with the first one)

There is also the consideration of the insurance premium.   If our heroes take a new mortgage putting down 10% they will incur a mortgage premium of $11,160.00.  If they ported the mortgage over they would only have to pay the premium on the new funds they are borrowing which would make the premium only $5,718.82.

When you add the lesser of the penalties and the difference on the premium insurance amount you can see that they would have saved $8141, or a whopping $12,180 on the second, by porting.

If you do decide to port  check with you mortgage lender to find out how your new rate will be determined, what amortization you have to keep, their porting timeline maximums and any other policies which could affect you.   Each lender is so different that the onus really is on you to cover all your bases.   Hopefully you can see that you should at least consider a port to save yourself money.

Things Your Mortgage Professional Wants Everybody to Know

General Pam Pikkert 5 Jun

Things Your Mortgage Professional Wants Everybody to Know

 

There have been so many changes to the mortgage universe and the whole thing can be really confusing so let’s take a look at the some of the core things that mortgage professionals want you to know.

  1. You can buy your next home with as little as 5% down if you are willing to pay the mortgage default premiums again.
  2. We can only refinance a home up to 80% of its appraised value.
  3. You can use a gift, borrowed funds, savings of nearly any sort, sale of an asset to provide the down payment on a home
  4. All mortgages with less than 20% down must qualify at a rate of 4.64%, as of today, though the rate you will actually be given is lower.  That is to ensure you can afford the mortgage payments when rates go up.
  5. The magic number is 2 as far as credit is concerned.  You need to have 2 types of credit for 2 years with a minimum limit of $2000 to show that you can manage your credit well and be offered the best rates.
  6. Fallback is the new black.  Gone are the days where they just need to know you have the 5% down plus the 1.5% for the closing costs.  The lenders all want to know you have a cushion of savings for unexpected life events.
  7. The onus is on you to choose the best mortgage and they are not all created equal.   Portability, prepayment privileges and penalties are a few things to compare.  If you sign a mortgage then make sure you understand the specifics as compared to other mortgages.  Penalties vary greatly lender to lender and not knowing is not going to get you out of a large penalty.
  8. If you are offered a $13,000 line of credit and a $54,000 car loan and you accept, you cannot later blame them for ‘letting’ you get yourself into trouble.  A large credit balance and a high vehicle payment will dramatically affect your ability to purchase a home.  That $13,000 line of credit or a $400/month vehicle payment will each decrease your purchasing power by $100,000.
  9. Cell phones report on the credit bureau as do mortgages, lines of credit, student loans, and installment loans like a vehicle payment.   To keep your credit strong, make sure you make your payments on time, don’t exceed 50% of the available limit and have at least one credit card to give the lenders a full idea of your ability to manage credit.
  10. Disability is the number one reason for mortgage default in Canada.   Budget for a good disability policy and maybe a job loss policy as well to protect your home.   Going through a third-party provider beyond your bank is a good idea so that you don’t end up tied to your bank forever.

As always, a mortgage professional is your best bet to ensuring you have the best mortgage and they are a friendly bunch so feel free to ask your questions.

 

Things Mortgage Professionals Wished the Self Employed Knew

General Pam Pikkert 29 May

Things Mortgage Professionals Wished the Self Employed Knew

 

The next installment in the things we wished people knew series is targeted at the self-employed.   This intrepid group of risk takers are entrepreneurial and help keep the economy moving but all too often we meet with these people and have to give news we would rather not give so let’s look at what we wish they knew.

  1. Surround yourself with professionals.  You are the expert in your field without a doubt, but that doesn’t translate to being able to do it all.

Having a knowledgeable book keeper and a well-qualified accountant can save you a fortune in tax deductions and time lost.  They are in your corner come tax time and heaven forbid through an audit by the CRA.  Their job is to know the ins and outs of taxes so that you can put your focus on growing your business.

A lawyer is also invaluable.  They will protect you against loopholes you didn’t know to look for in contracts.

Mortgage professionals are also a must.  They can help you with your home, a rental portfolio if you plan to diversify and commercial lending when you are ready.

  1. You can’t have your cake and eat it too.   The lending landscape in Canada has totally shifted in the past few years.  Long gone are the days of simply stating what you earn without any verification of such and being offered a mortgage with little money down and low rates.    If you choose to write off as much of your income as possible to avoid as much taxes as possible then you will pay a higher interest rate on your mortgage
  2. You have to keep your affairs up to date.  That mean getting the accountant prepared financials, filing your annual returns and most importantly paying your taxes.  If you have a large outstanding tax balance you are going to find it nearly impossible to get a mortgage.  Taxes trump mortgage in order of who gets paid first so there are no prime or near prime lenders out there who will lend to you until these are paid.
  3. The magical number in the mortgage world is 2.  You have to have a 2-year history of self-employment with accompanying documentation to be able to proceed with the mainstream lenders in most cases.  You also need 2 types of credit each with at least a $2000 limit to keep your credit strong.   Be aware of how debt may affect your purchasing ability.  A large credit balance and a high vehicle payment will dramatically affect your ability to purchase a home.  That $13,000 line of credit or a $400 vehicle payment will each decrease your purchasing power by $100,000.

 

The bottom line is this, make sure that you use your whole team.  If you are wanting to buy a home within a couple of years then before you go fully self-employed or purchase that new truck or write off all the income you can, talk to your mortgage professional to ensure you are not inadvertently putting your home ownership goals on hold.