Saturday, 27 June 2015

Fixed Vs. Variable Rate Mortgages

While there are pros and cons to both these mortgage types, I am going to try and dispel any myths or misconceptions surrounding each. It's important to understand the difference when choosing your mortgage so that you are not only getting the best rate possible, but are comfortable with any changes that may come along later.

Fixed Rate Mortgages

With fixed rate mortgages, your lender has committed to keeping your mortgage rate the same throughout the term of your mortgage. This is beneficial because it becomes very easy to predict how much of your payment will go to principal or interest each month. (To see it in action, try this Free Calculator)Another benefit is knowing exactly how much of your mortgage will be paid off when you come up for renewal. The one major drawback to this type of mortgage is that this security usually comes along with a higher prepayment penalty should you decide to pay off your mortgage. This can be a major disadvantage if rates fall because it may cost a significant amount of money to break your mortgage.

This penalty is call the Interest Rate Differential and is calculated using the following formula:

(Your Current % Rate - Your Lender's Current Rate for a term Similar to your Months Remaining)/12 x Your Mortgage Balance Owing x # of Months Remaining in Your Term

I know what you're thinking, it's complicated and sounds expensive, and you're right. It's designed by the lender to ensure that they get paid whether you stick around or go somewhere else with your mortgage. To put it in perspective here's an example using a $200,000 balance and a 3.69% interest rate, with a current similar rate of 2.69% and 36 Months left in the term.

(3.69%-2.69%)/12 * $200,000 * 36 Months = $6000.00!

It will cost you approximately $6000 to get out of a mortgage like this! The worst part is, some lenders may even use different calculations including "Discounted" and "Posted" rates so they can charge even higher penalties. Make sure you have a mortgage professional you can trust to be sure that you are aware of the penalties and terms when selecting a new mortgage or when your current mortgage is up for renewal or a refinance.

There are always exceptions to this prepayment rule, as can often be the case with Portability. Read this article for more info on mortgage portability.

Variable Rate Mortgages

The public seems to have a love-hate relationship with variable rates. Historically speaking a variable rate mortgage will almost always save you money in the long-run, but people are wary of the risk of not knowing where rates might be headed. Along with this risk go some major benefits though in the way of prepayment charges. Variable rate mortgages generally use a rule of 3 months interest as the penalty to break your mortgage term. If we go back to the same numbers as our example above, you can see the difference is massive:

(3.69%/12) * $200,000 * 3 Months = $1845.00

That's a potential savings of $4155.00 should you choose to pay off your mortgage early or move to another lender. This can be a huge benefit if rates drop or if something changes in your life that requires a refinance, sale of your property, upsize/downsize, or any major change to your current mortgage.

And The Winner Is.....

There is no clear winner when it comes to Fixed vs. Variable rates, what really matters is the risk you are comfortable tolerating, vs. the potential costs should there be a need to change your mortgage for some reason. When it comes right down to it, if the thought of rates creeping up is enough to keep you awake at night, then a Fixed Rate is the right choice for you. If, however you want prepayment flexibility the the potential to save some money over the term of your mortgage, then a Variable Rate is the better choice.

Everyone is unique, and so too should be your mortgage solution.


For the most up-to-date information on rates, mortgage terms, and real estate in Kamloops, BC please visit us at www.ryanwsmith.ca or

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Friday, 26 June 2015

Is The Sky Falling on Canada's Real Estate Market?

Why the sky still isn't falling on Canada's real estate market

Have you been thinking lately about the 'inflated' price of housing in Canada? It seems to be a hot topic and while many seem to be of the opinion that a crash is coming, they don't seem confident in predicting when. Here's a great look at some historical comparisons which might allow us some insight into how likely or unlikely a market crash could be.

Thursday, 25 June 2015

Best Renovations For Resale Value

Following my other post about the unique Purchase Plus Improvements program, here is a list of some of the best ways you can invest in your home both for your own enjoyment but also for resale value. If done well, these renovations can offer a return on investment of anywhere from 75-100% of their initial cost. If you are able to do some of the work yourself, the return on investment becomes even greater.

1) Flooring

Flooring is one of the first things people notice upon entering a home. It can completely change the feel of an interior space and if chosen well will be durable and beautiful for a very long time. Choices range from ceramic tile, to vinyl, carpet, hardwood, cork or engineered flooring systems. Having so many choices makes it easy to find something that suits your style and will keep your home looking good for many years to come. You can expect a great return on your investment in this upgrade, but be sure to choose a type of flooring that complements the price point of your home and neighbourhood.

2) The Kitchen

The heart of the home is the kitchen. As such, it is an important gathering place for your friends, family, and potential buyers in the future. Creating a kitchen that is functional and up-to-date will go a long way towards enjoying the time you spend in this space as well as the "Wow Factor" that a buyer sees when viewing the home. Nice appliances, good layout, and carefully selected materials should all go towards creating a kitchen that is versatile, long-lasting, and stylish.

3) Bathroom

The bathroom is a great place to invest some time, effort, and money into updating. People are expecting clean, stylish, and functional in this room so make sure to get it right the first time. Tiled floors, granite and stone vanities, and spa-like showers and baths get people excited about spending time here. That translates into a nicer experience for you and potential buyers.

4) Fixtures

Quality fixtures can make or break a home. Everything from lighting choices to curtains, drapes, and even sinks, toilets and faucets will be worth investing in up-front. Good fixtures last longer, maintain their style for many years, and will often result in a savings over the long term with a lack of maintenance and repairs vs. a cheaper option. Like most things in life, buy for the long-term and you will thank yourself later.

5) Income Suite

Last, but definitely not least, is the option to invest in building a income suite as part of your home. This is popular with both younger people and those looking to maintain an income into retirement and later in life. If you are able to use some of the space in your home's basement to produce income for you, you will be setting yourself up for return on your investment now and in the future. Resale value on homes with suites is better than ever, and it is a great way to allow people to more comfortably afford their home for longer. With that extra monthly income comes the ability to pay your mortgage off faster, save some money, or to have some money for things like that vacation you've been dreaming of or that new car you've had your eye on.


It is important to know that you won't always get back the money you put into your home, but if you choose your renovations wisely you can maximize your opportunity to enjoy the benefits of your renovations now and reap the rewards when you go to sell your home later.

Still looking for some more great ideas? Try Genworth's recommended list of improvements here for more info and great tips.

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Tuesday, 23 June 2015

The Rise and Fall of the 10-Year Mortgage Term

This is a great article building on the foundation of my previous post about Choosing Your Mortgage Term. It's interesting to learn the reasons for the rapid decline in popularity of the 10-year term mortgage. This can be a great product for a very select few consumers, but the majorty of people are choosing other alternatives, and with good reason. Enjoy!

'A great rate for a bad mortgage': The 10-year mortgage is near an all-time low, but is it a good idea?

Saturday, 20 June 2015

Are We In For A Housing Meltdown?

Should Canadians be worried about a potential housing meltdown?

While the sharp collapse in oil prices is set to have a marked short-term impact on Canada's economy, it is the looming threat of a housing crash that worries policy makers the most. Not only would it wipe out the wealth of many Canadians, but the ripple effects would be felt across the economy and threaten…

Friday, 19 June 2015

Good Debt vs. Bad Debt

In the world of personal finance, there are 3 types of debt: Good, Bad, Ugly. While there are some who would argue that no debt is good debt, I beg to disagree.


The Good...


It is fairly straightforward to distinguish good debts. These usually combine several different beneficial features such as:
  • Low interest rates
  • Excellent repayment terms
  • Little to no prepayment penalties
When you are able use these benefits to your advantage, debt can become quite productive and even work for you. A mortgage can often be considered good debt, as they usually come with competitive rates and terms, and allow you to invest earlier in an asset(your home) that will likely hold or even increase it's value over the life of the loan.

Another use of credit like this might be to fund an education, for example. If you are able to secure a student loan with a good interest rate and terms, you can use that money as an investment in your future earning potential. It is important to remember that how you utilize the credit you have available to you is the key to carrying 'good' debts.

If you consider how much the debt will cost you overall and compare that to the benefit of what you are purchasing or investing in, you will be able to make a decision on whether that debt is 'good' for you or not.


The Bad...


Most of us are aware of the 'bad' debts we have had or currently have. These usually encompass credit cards or personal debts which have high interest rates and sometimes challenging repayment schedules or penalties.

One of the key defining features of 'bad' debt is that the debt is built through purchases of goods which do not hold or increase in value. Prime examples might be consumer goods like electronics, furniture, etc. As soon as you have bought the item it's value begins to diminish, despite the interest which is already accumulating behind the scenes. That couch you bought for $1000 today might well wind up costing $2000 by the time you add in interest and any fees associated with your financing. The worst part of all is you now have a $1000 couch(which you essentially paid $2000 for), which is actually worth far less than even your initial purchase price.

When you think about all the costs associated with credit-funded purchases like this, it's easy to see how these debts can grow very quickly to become overwhelming and out of control. It is important to work to pay these debts off quickly to minimize the effects of compounding interest and depreciation of your assets.


The Ugly...


While I could just as easily lump this category in with 'bad' debts, I like to make a distinction between
average credit cards/loans and department store cards, payday loans, and other 'point-of-purchase' financing programs. It's tempting to make purchases on these types of readily-available credit programs, but the costs can escalate quickly.

Financing like this usually comes at extremely high interest rates(think 20%+) and may even include hidden or up-front fees. Even if the interest rate seems reasonable(no interest for 90 days, etc.), make sure that you include the cost of the fees when calculating the cost of these options. When you include their so-called 'administrative fees' these cards and loans can often cost in excess of 30% or more!


When was the last time you took a look at your debts and thought about which were good, bad, or ugly? It's a review I recommend on a twice-yearly basis for my clients in order to keep on top of things and make use of their existing credit in as effective a manner as possible.


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Thursday, 18 June 2015

The 3 Steps to Mortgage Rate Happiness


It’s safe to say most people want the best mortgage possible. While your mortgage broker works diligently on your behalf to secure the best rates and terms, some people simply want to shop around before making a decision. I say go for it! Not only that, but I will give you a 3-step plan to find out who has your best interest(*pun intended) at heart.


Step 1) Go to your bank


Yep that’s right, I said go see your bank and ask about their mortgage rates. Don’t tell them you’re using a Mortgage Broker; Just tell them you want to know their best rate on the mortgage term you’re searching for.


Step2) Call me, visit me, or email me


Bring the rate that your bank offers you and we’ll review it to see how it stacks up against other lenders. As a long-time, valued client do you feel that your bank offered you the best rate or took the time to really understand your needs? Not only will I beat their rate, but I will take the time to get to know you and understand which mortgage products will benefit you most. I may even be able to negotiate a better rate and mortgage with your existing bank if you prefer! 


Step 3) Sit back


And bask in the joy of having gotten the best rate going, and in the fact that you know I’m working hard to put your needs first. Can you say the same about your bank?

Some of the major banks I deal with will offer their existing clients(at the branch) a rate that is .5% or more higher than what they offer my clients. It’s disappointing that they treat people this way, but they are relying on you not shopping around. Think about the potential savings, that’s a difference of $4706.86 in interest on a $200,000 mortgage IN JUST 5 YEARS! Now multiply this amount by the number of years you will have your mortgage and you will save a significant amount of money. What are you enjoying with all the money you’re saving?

For the most up-to date Mortgage Information and rates, please visit our website at www.ryanWsmith.ca or follow us at:

Tuesday, 16 June 2015

First-Time Buyer Benefits

First-Time Home Buyers are fortunate to have some benefits when thinking about buying that first home. Make sure to read my FAQ's and check out my Resources to get all the information you need to be ready to buy when the time comes.

Here are a few of the programs you might be eligible for if this will be your first home purchase:

Property Title Transfer Tax Exemption


This program refunds some of the property transfer taxes paid to the buyer(s). The refund is the amount of tax normally due on that property, up to a maximum of $7500(max $475,000 property), and properties up to $499,000 are eligible with the credit decreasing proportionally with property value. To qualify, you must be a “first-time buyer” as defined by the program(see:Here for more details).You may also be eligible if only one spouse/partner is a first-time buyer but you will only receive a portion of the refund (usually 50%).

RRSP Home Buyer's Plan

This is a federal government program which allows first-time buyers to utilize some of their existing RRSP savings in order to purchase a qualifying home. This is a great option for people who have some savings tied up in RRSP’s and would like to use them without paying income tax on the amounts used for your purchase. Each person can generally take out up to $25,000, and they must follow the guidelines for repaying that amount over a maximum of 15 years. Please see: http://www.cra-arc.gc.ca/hbp/ for the details.

New Home GST Rebates

This rebate program is important not just for first-time buyers, but for anyone who is looking to purchase a qualifying new or substantially renovated property. There are some specific criteria to meet depending on you and your property’s unique circumstances, but this can save you some of the GST/HST you might have to pay on a new home purchase. Visit: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/hsng/rbts/nwhsng/menu-eng.html to learn more about eligibility and amounts.


For the most up-to date Mortgage Information and rates, please visit our website at www.ryanWsmith.ca or follow us at:




Monday, 15 June 2015

8 Things You Need to Know Before Refinancing

Have you ever thought about refinancing you current mortgage? If you are like most homeowners, the answer is yes. While refinancing can come with many benefits, there are a few things to be aware of before diving right in.


Why Refinance?

There are quite a few reasons that you might consider a refinance, but by and far the most common are:


1) To negotiate a lower mortgage rate or better terms


- A refinance can be an opportunity to move on from that high-rate mortgage you've been feeling trapped in. It might also be a good chance to consider a lender with better prepayment privileges or less severe early payout penalties.

-If your goal is to lower your rate and save money in interest, then you must weigh the costs to break your current mortgage(See: IRD and 3 Months Interest Penalties), vs. the savings experienced. You should expect to see a break-even point in the near future based on the interest you will save each month. I've developed a spreadsheet to compare these options, please email me and I will be happy to create a comparison just for you.

2) To take out existing equity from your home

 

- Many people choose to refinance their mortgage as a way to access some of the equity built up in their homes over years of repayment. Common uses include home improvements(that reno you've been dreaming of!), travel(Whoo! Vacation time!), or extra cash for early retirement or to help fund your children's education. There are as many different ways to use this money as there are people, it is yours to do with as you see fit.

-With these options, you must consider the total cost of borrowing in order to have a true understanding of the cost to borrow the extra funds needed.

3) Debt Consolidation


- When mortgage rates are a tiny fraction of the cost of unsecured debts like credit cars, lines of credit, and personal loans, a mortgage refinance could be a way to consolidate some or all of your debt into one easy payment at a much better interest rate than you are currently paying on your consumer debts.

- Debt consolidation is a great chance to become debt free sooner or to lower your monthly obligations. Discuss your long and short-term goals and keep them in mind when choosing terms, amortizations, and monthly payments.

What Are The Options Then?


If you've decided that a renewal is something that you could benefit from, you should know that there are several different ways and times to access these funds. It's a good idea to consider all the options and to choose the one which best suits your intended purpose for the funds(See above).

1) At renewal time

- If your mortgage is coming up for renewal soon, it could well be worth the wait to refinance until your mortgage reaches maturity. The benefit is that you won't be paying any early payout penalty, potentially saving you thousands of dollars.

2) Early Renewal

- An early renewal could be in the cards for you if the savings of a new, lower interest rate outweigh the costs of breaking your term early, or if you need access to the funds before your mortgage matures. The penalties vary between the different financial institutions, but if you are unsure of your lender's policy please let me know and I'd be happy to give you all the details.

3) HELOC(Home Equity Line of Credit)

 - A HELOC is a line of credit which is secured against the equity in your home. The major advantage of a HELOC is that you can access funds up to your approved limit any time and only as you need it. You will have to make minimum payments on any balance you carry, but you will only pay interest on the amounts you actually use. This is great to have around for unexpected expenses, or to carry shorter-term debts.

- You may not even need to refinance to add a HELOC to your existing mortgage, many lenders will allow you to add this component to an existing mortgage if you are happy with the terms and rarte you currently have. See your mortgage specialist for details on whether this could be an option for you.

4) Blend & Increase

- In this case, your current lender will lend you additional funds at a new rate, while keeping your original mortgage amount at your old rate, effectively blending the 2 rates together somewhere in the middle. In most cases, a blended rate will be higher than current market rates so consider the costs vs. the savings of simply renewing into a new mortgage at a better rate.

- Many lenders will extend your mortgage term with this option. Depending on the prepayment terms, penalties, and other details of your mortgage, this can be a benefit or a drawback. Consider whether you are comfortable carrying on with those terms for an extended period of time.

5) Second Mortgages

- Second mortgages are often an option for those looking for some assistance with credit rebuilding and/or debt consolidation. It is best to look at this as a stepping stone in the direction of renewing or refinancing later at a better rate.

- Interest rates are higher on second mortgages because there is more risk on the lender's part when they are in second position. The trade-off comes in knowing that you can get an approval when you need it, and also in the fact that the rates are usually still significantly lower than consumer debt like credit cars and unsecured loans.


For the most up-to date Mortgage Information and rates, please visit our website at www.ryanWsmith.ca or follow us at:

Sunday, 14 June 2015

Down Payments 101

Today's Lesson: Down Payments

Saving your down payment for a new home or investment can be one of the most diffcult parts of the entire process. Let’s be honest, it can be tough to put aside that much money and not have anything to show for it, yet.

There are a few things you should keep in mind, however. The more money you put down the better your chances are of getting a mortgage, and hopefully a great rate to go with it. Both the lenders and mortgage insurers(CMHC, Genworth, Canada Guaranty), all look to your down payment as an indication that you are capable of saving and are serious about purchasing that particular property.

 Can I Use A Gift/Borrowed Funds?


Many people will be able to use the option of a gifted down payment from someone in your immediate family. This can include parents or grandparents, and it is becoming increasingly common for parents/grandparents to help their children purchase their first home or help young growing families to up-size into larger homes. As many as 40% of first-time buyers use gifted or borrowed money for some or all of their down payment.

How Much Down Payment Do I Need Then?


The truth is that as of writing this article it is still possible to purchase an owner-occupied home with almost no money down. Purchasing property for investment will generally require at least 20% down, but there are some creative options to be explored if this is your intention. Investment properties present unique challenges and you should always consult a mortgage professional to understand all available options.

With regards to standard(pre-existing) home purchases, down payment amounts usually work out something like this:

Insured Mortgages:


Mortgages which have less than a 20% down payment fall under the category of "Insured" mortgages. This means that you will be required to pay for mortgage default insurance through either CMHC, Genworth, or Canada Guaranty as part of your mortgage. The cost can vary as can the details, please visit my blog post on Mortgage Insurance for a more thorough explanation of this product and why you may need it.
0-5% Down:
There are currently lenders who will accept a down payment that is completely borrowed, so long as you have at least 1.5% of your purchase price to cover your closing costs(Lawyer, PTT, etc.). This is, however, a good option only for those clients who have exceptionally good credit, good income, and can show an explanation as to why they want/need to borrow their down payment. Examples of people who may qualify for this are students who have recently finished school and have nearly or completely paid off any student debts, or anyone else who has good income and credit but has not had time or opportunity to save up a larger down payment.
5%-9.99% Down:
5% is a very common amount of money to put down on a primary residence(Especially commong with first-time buyers). Most lenders will consider this a good place to start, and some will even consider 5% enough to purchase a second home or vacation property. This can also be a great option for parents sending their children to university and who would like to invest in a purchasing a property for for the child. A parent could purchase a property with only 5% down, giving the student will have a place to live during school.
10%-14.99% Down:
A similar scenario to above, but putting 10% down can be a way to improve your chances of finding a good rate and solution if you have a lower credit score, or not a lot of credit history
15%-19.99% Down:
Almost have enough funds for a “conventional”(i.e. 80% LTV or less) mortgage, but not quite there yet? Not to worry,  CMHC, Genworth, and Canada Guaranty all have solutions for you as well.


Conventional Mortgages


20% or more Down:
If you are able to put 20% or more of your purchase price down, your mortgage is considered to be a “conventional” mortgage. This doesn’t necessarily mean that your mortgage won’t be insured though as some lenders still require this, but it usually means that you are not the one paying for the insurance premium. Having more than 80% equity in your home also opens up a world of flexible and creative mortgage options ranging from debt consolidation, to refinancing for equity take-outs, to Home Equity Lines of credit and creative options for tax and retirement planning.


As you can see, something as simple as how much down payment you provide can be a difficult, complex process. It is important to sit down with a mortgage professional to discuss your choices and to see which mortgage solution will fit into your life and financial plans.

Friday, 12 June 2015

First Home - First Steps

Where Do I Start? 

 Thinking about buying your first home, but not quite sure where to start? Here's a simple how-to guide for first-timers.

Purchasing your first home should be an enjoyable, exciting part of your life; and while I’m sure everyone has their own opinion on the best way to go about this, here are the steps I suggest for my clients to make it as easy and efficient as possible.

 

The Advice

See a professional. These three words sum up the best place to start. Whether this is your first home or your fifteenth, it is always good to start with a consultation with your local Kamloops mortgage broker. We are here to offer the advice you need and to help you answer these key questions.

  1. Is now the right time to buy property?
  2. How much can I afford?
  3. What do the current mortgage rates/terms look like?
  4. How does this fit into my overall financial plan?
My job is to review not just the purchase you are thinking of making, but how that decision affects your short-term and long-term financial health and wealth. A professional review of your financial position is critical to making an informed decision that will benefit you for years to come. Your first appointment might also include a Pre-Approval or pre-qualification for a mortgage; this allows you to look for your property with confidence and lets you narrow your search to a particular price range.


The Search

See a professional(Again!). This is when you get to spend time with your favourite Realtor and make sure they get to know you. Still looking for a Realtor to tour you around? I would suggest http://kadrea.realtyserver.com/ as a great place to start in the Kamloops area. Once you've decided who to work with, you can get together to discuss things such as:

    What type of property are you searching for? (Urban/Suburban? Out of town? Big/Small?)
    Why did you choose this type/size of property?(New family? Downsizing? Rental income?)
    What price range are you searching in?(Check out these Calculators)
    Long-term goals for this purchase?(I.e. Investment Property? Forever home?, Etc.)

After a lot of learning, deliberation, and decision making you should have a clear picture of what you are searching for and how to find it at a price that suits your lifestyle and your goals. Now get out there and view as many homes as you need in order to find the one that is right for you!

The Action

So you’ve found the perfect place, congratulations! Now what?

Make an Offer

Now you work with your Realtor to create an offer/contract that includes your purchase price as well
as all the important terms of the sale. This usually involves some negotiation between your Realtor and the sellers to come a price and terms that everyone agrees to and accepts. Once you have an accepted offer in hand(so we have plenty of time to arrange everything), you should contact your mortgage broker again and make sure to choose a lawyer/notary who can help you through the final steps.

Subject Removal

Your offer will probably also include some subjects(or conditions) that must be fulfilled by a certain date(usually about 2 weeks+ after accepting the offer). These may range from arranging financing(good thing you’ve already seen your mortgage advisor!), to completing a home inspection, arranging property insurance, or anything else that needs to be arranged to ensure you are completely happy with your purchase and your accepted offer. Once the subject removal date arrives, you have one last chance to meet with your Realtor and discuss the details before your purchase agreement becomes legally binding(Read: last chance before you're committed to buying this house!)

Completion

If everything is going smoothly and you have agreed to remove subjects, your mortgage broker will forward all the necessary documents to your lawyer/notary who will make sure the money changes hands correctly and that the title to the house is registered in your name on your chosen completion date. Your lawyer will also be responsible for ensuring that all outstanding debts are settled and divided as necessary between you and the sellers, including things like property taxes, utilities, etc. These costs can sometimes come as a surprise to new homeowners so make sure you take the time to ask questions and understand all the documentation you receive. I'm always happy to review these things with you, just ask!

Relaxation

Once all this is done, you get to sit back and enjoy your status as a proud home owner,
congratulations again! Good advice and a good relationship with reliable, trustworthy professionals should make the whole process simple, hassle-free, and enjoyable. That way you can get to the hard part, moving in!


For the most up-to date Mortgage Information and rates, please visit our website at www.ryanWsmith.ca or follow us at:

Thursday, 11 June 2015

Mortgage Insurance - What You Need To Know About CMHC, Genworth, and Canada Guaranty

Mortgage Insurance: 101

For the sake of clarity, let's start by clarifying the meaning of the term "mortgage insurance". When we talk about this, there are generally 2 things that come to mind:

Life and/or Disability insurance, or Mortgage Default insurance. 

Today we will be focusing on the latter of the two.

What is it?


Mortgage default insurance is a policy which protects your mortgage lender in the event that you default on your payments. One concept which is critical to understanding this product is to remember that it is not designed or intended to be used by you, the buyer of property. It is there to pay your lender if you default on your payment obligations, plain and simple. In mortgage transactions, there is always risk to the lenders and statistically this risk increases drastically when loan-to-value ratios exceed 80%.

Enter: CMHC. This government-owned corporation offers several mortgage default insurance products that allow prospective homebuyers to obtain a mortgage with little to no money as a down payment. Since CMHC coming on the scene, there are now also private companies such as Genworth and Canada Guaranty which offer similar products and unique variations depending on the property, the borrower, or any other variables which can affect your mortgage application.

Why do I need it?


In Canada, it is a requirement that any mortgage which has a loan-to-value of greater than 80%(Or less than 20% down payment, if you prefer) MUST be insured on the lender's behalf. This extra security allows lenders to feel more comfortable taking on the risk that comes along with high-ratio mortgages and it allows the real estate market(not to mention the economy) more security as well.



The mortgage insurers also act as a secondary review of all high-ratio mortgage applications. Having this third party go over the property and mortgage details in these transactions is important to ensure that the deals are being under-written carefully. This way there is even greater peace-of-mind for the buyers, the lenders, and the insurers that the property will hold it's value for some time to come.

How much does it cost?

The premium for mortgage default insurance (as of June 2015) varies between 1.25-3.85% of your total mortgage amount. It increase according to your loan-to-value ratio and the source of your down payment. The higher the LTV and therefore the riskier the mortgage, the more you will be required to pay. Once calculated, the premium is then added to your mortgage and amortized over the life of your loan as part of your monthly payments(Which means you won't have to pay this fee up-front).

To try an excellent insurance premium calculator, visit CMHC HERE

As the lenders and insurers get more selective about the products they offer and the mortgages they are willing to approve, it is becoming increasingly important to have a licensed mortgage broker on your side to decipher the complexities around the different options available.


For the most up-to-date information on your Home Purchase, Mortgage Refinance, or Mortgage Renewal in Kamloops, BC please visit us at www.ryanwsmith.ca or

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Wednesday, 10 June 2015

Do I Qualify For a Mortgage?

To answer this question I need to get to know you, a lot better.

It’s my job to get to know all aspects of your financial situation, your long-term/short-term goals, and how these details fit into your life and lifestyle. By getting to know these things, I can start to formulate a detailed mortgage plan that is custom-tailored to you. This is something that makes my services unique, and allows me to recommend solutions that might otherwise be overlooked by larger financial institutions(i.e. the bank).

Where do we start?


Our first step should be to sit down and talk about you and your needs, either over the phone or in person. From there I can build a profile that will let us take a holistic look at where your mortgage(s) fit in to your life and financial plans. Your plans could be as simple as purchasing/refinancing a home, investing in an income property, or even as intricate as commercial lending, but the foundation is the same:  “I need to get to know you better.”

Before your appointment with me you should try have some basic information ready regarding your income, how you are paid(hourly, salary, commission, etc.), any existing monthly payments, and any assets(things you own) or debts(loans, credit cards, student debt, etc.) you are responsible for. All these things affect your potential mortgage amount and we will combine them all into a complete picture of you as a borrower.

Building your unique profile


As we go through the process, I will enter your information into our cutting-edge computer system which allows me to track and analyze everything we’ve discussed and to recommend the lender that best suits your needs. Once the lender has reviewed your file, they will usually come back with a pre-qualification. This is an indication that based on the information we submitted, you will likely qualify for the mortgage amount we’ve requested.

What is it that you want to purchase?


We will also spend some time discussing the property you would like to purchase(assuming you are  still searching), or the property(ies) you currently own. It is important that we consider the location, the services and amenities, and the overall condition of the property. I can then add all the relevant information to your profile, which leads us to helping choose the best lender for you. Sometimes this involves having an appraisal of the property, but again I’m here to help and will get this process going for you.


If you would like to get the most up-to-date information in Kamloops, BC on your Home Purchase, Mortgage Refinance, or Mortgage Renewal, please 'Like' our Facebook page and follow me on Twitter and Pinterest. Also visit my website www.ryanWsmith.ca to Apply Now for your mortgage!


Tuesday, 9 June 2015

Mortgage Portability

How many times do you plan on moving in your lifetime? Statistics show that people will now move an average of 11-12 times in their lives. This is a pretty startling statistic that reminds us that our "Forever Home" may not always be forever.

The great news is I can teach you about a great feature called Portability which will allow you the ability to take your mortgage with you when you move. "But why do I want to take my mortgage with me?" you say. Well, that's because the feature of portability usually means you avoid paying any steep pre-payment penalties like the Interest Rate Differential or 3 Months interest penalty. Not having to pay a penalty like this when you move could save you thousands of dollars.

An important thing to remember when porting your mortgage is that most lenders will expect you you to pay any pre-payment penalties as soon as your first home is sold. They will then give you the amounts due back as a refund when your new home purchase is completed. This is critical to remember as you must budget to have that money out of pocket for a small period of time.

Portability can work to your benefit in 3 different scenarios:

(P.S. If you want to brush up on your mortgage terminology, find my Glossary HERE)

Port with a decreased mortgage amount


This is often the case when downsizing or moving from a more expensive city to a community with lower property values. What this means is that your new mortgage amount will be less than the total mortgage owing when you sell your first property. While most lenders will allow you to port your mortgage and decrease the total owing, there will usually be a penalty to pay based on the difference between the two mortgages. This should be discussed with your broker and lender so that you know how much of a penalty you will have to pay when everything is completed.

In this scenario, your interest rate and term will remain the same, but your mortgage amount will decrease.

Port with the same mortgage amount


This is an unusual situation but it does occur occasionally. In this case, your total mortgage amount will stay the same based on the property you are buying. What is tricky here is that although the amounts are the same, you will again still have to pay the penalties and wait for the refund to come in from your lender once you have closed on your new property.

Your interest rate and term will remain the same, as will your total mortgage amount.

Port with an increased mortgage amount


This is a very common scenario for people who are either relocating or are looking for a larger house to accommodate a growing family. When all is said and done, your new mortgage amount will be the original mortgage amount, plus any extra needed to purchase the new, more expensive property.

When increasing the amount of your mortgage, your new interest rate will be 'blended'. What happens with a blended interest rate is that the original mortgage amount stays at your original mortgage rate, but any new money(the increased amount) is loaned to you at 'current' rates. This can be either higher or lower than your existing rate but should be discussed with your Kamloops Mortgage Broker so you understand the consequences of blending. This is a complicated calculation to make, but one you should understand fully to determine if porting is the right option for you in this case.

With this option your term will remain the same, but your total mortgage amount will increase.

The "Blend and Extend" option


Some lenders will allow you to blend interest rates, and extend to a longer term. This can be beneficial if you feel you have a good rate and product and would like to stay locked in with that rate for a greater period of time. In my experience, this can be a good tactic to consider when contemplating an early mortgage renewal.

Whether you are increasing your mortgage amount or keeping it the same, this option is a good way to negotiate a better rate with your current lender while avoiding the cost of pre-payment penalties.


How Do I know What Is My Best Option?


There are a variety of Calculators on my website you can use to compare these options. And when you're ready for a more accurate look, Schedule and Appointment with me and I will be happy to go over your options in great detail.

If you would like to get the most up-to-date information in Kamloops, BC on your Home Purchase, Mortgage Refinance, or Mortgage Renewal, please 'Like' our Facebook page and follow me on Twitter and Pinterest. Also visit my website www.ryanWsmith.ca to Apply Now for your mortgage!


Monday, 8 June 2015

Mortgage Term vs. Mortgage Amortization



This is a concept that I struggled with when I first started thinking about buying a home. In my head, I couldn’t understand the difference between an amortization and a term. How do these affect my payments? How do they affect the length of time it takes to pay off my home?

Amortization


The mortgage amortization period, put simply, is the length of time it will take to completely pay off your initial mortgage amount. This is the period of time lenders use to Calculate your monthly payments. A shorter amortization will usually mean higher payment, higher principal repaid, and less interest than a longer one. Mortgage amortizations can range anywhere from a few years to as much as 35 or even 40 years in some cases. As a borrower, it is important to understand how your amortization as it can affect not only your payments today, but your long-term goals later.

Term


Your mortgage term is a related, but very different period of time. It indicates the length of time in which you agree to a specific set of terms and interest rate with a particular lender. A closed term indicates that there will be some form of prepayment penalty should you break the contract(i.e. refinance, move to another lender, etc.). These usually come with a lower rate as you are more likely to complete the full term(Anywhere between 1-10 years).

Open terms on the other hand give you the ability to completely repay your mortgage amount at any time during the term. This can be beneficial for flips, short-term stays, or during periods of construction as you are able to break your term at any time to change mortgage products or move to another property.


There are pros and cons to different amortization lengths, as well as terms. There are also pros and cons to open vs. fixed terms. Please visit my Glossary and FAQ pages for more info and stay tuned here for more posts!

If you would like to get the most up-to-date information in Kamloops, BC on your Home Purchase, Mortgage Refinance, or Mortgage Renewal, please 'Like' our Facebook page and follow me on Twitter and Pinterest.

Purchase Plus Improvements Mortgages

Are you dreaming of buying that "fixer-upper" and turning it into your dream home? If so, then the Purchase Plus Improvements Mortgage might be your solution.

This unique program allows you to add as much as $40,000 in Renovations/Improvements and renovations to your mortgage when purchasing a home. This can be fantastic if you love a home for it's structure and it's location, but wish you could update things like the kitchen, bathroom, or finish the basement, for example.

How Does it Work?


Your mortgage lender will lend you up to 95% of your home's "As-Improved" value, generally meaning the purchase price of the home in addition to the cost of the improvements that you have done. The mortgage is advanced to you in two stages, the first amount released will be enough to complete your purchase, and the second will be the amount of renovations you specified when you applied for your mortgage. Try my Free Calculators to see for yourself how much you can afford.

What's The Catch?

 

One important consideration is that the lender will not release the funds until the renovations have been finished completely. This means that it is your responsibility to finance the renovation while it is being done. Most people will pay for their renovations from a line of credit, or a short term loan from family while the work is being done and then immediately repay the money once the final inspection is complete. There is also usually a stipulation that the work be completed within 3-4 months of your home purchase completion.

That Sounds Awesome! Where Do I Start?

 

If you think this might be the mortgage solution for you, visit me online at www.ryanwsmith.ca and schedule an appointment today. We can review your options and create a plan that will take you from your First Home to your Dream Home in no time!

If you would like to get the most up-to-date information in Kamloops, BC on your Home Purchase, Mortgage Refinance, or Mortgage Renewal, please 'Like' our Facebook page and follow me on Twitter and Pinterest.

Friday, 5 June 2015

What Is The Right Mortgage Term For Me?

I'm often asked what mortgage term is best for my clients, and it is tough to give a one-size-fits-all answer. The right term for your mortgage should be a balance of best rate and least risk, all while keeping you sleeping soundly at night. 

The shorter the term, the more you may have to worry about rates rising at the time of your renewal. 

Lenders know that most people are wary of interest rate fluctuations and therefore will generally charge a higher rate for the security of a longer, fixed interest rate term. Longer terms give you the benefit of knowing your payment/rate stays the same during your term, but at the expense of a higher rate overall. This is why it is important to get advice from a mortgage advisor who understands your unique situation and the variables that affect you. Terms can vary from as short as 6 months all the way up to 10 years, with 5 being smack in the middle and the most common choice in our area at this time. 

Looking at the rate sheets it is tempting to think that the lowest rate is the best decision, however as with any mortgage choice, rate is not always the most important factor!

Ask yourself, “How does this fit into my life? How does it fit into my long-term goals and short-term plans? Am I comfortable with my choice?” The most important thing is to be comfortable and fully informed in making your decision, that’s why I suggest seeking the specialized help of a qualified Mortgage Broker to ensure that you make the right decision for you.
For the most up-to-date information on rates, mortgage terms, and real estate in Kamloops, BC please visit us at www.ryanwsmith.ca or

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Wednesday, 3 June 2015

How Much Mortgage Can I Afford?


While I can’t pick a number out of a hat, I can tell you a little bit about the “magic” that goes into determining your maximum monthly payment. Lenders are wary of the risk involved with all types of lending(including mortgages). What this means for you is that they use some very specific formulas to decide if (and how much) they will give to you, the borrower.

Two of the most important formulas(ratios) are:

Gross Debt Service (GDS): The percentage of your monthly income that is needed to pay for your monthly housing costs (mortgage payments, property taxes, heat and 50% of any condo fees)

Total Debt Service (TDS):  The percentage of your monthly income that is needed to cover your housing costs (GDS), as well as any other monthly liabilities you may have (such as credit card payments, car payments, student loans, etc.). 

These numbers indicate the amount of your income that goes to covering your living expenses and your current debts. This is important to you as well as your lender to ensure you aren’t overspending or living beyond your means. I spend the time to get to know you and your “magic” GDS/TDS ratios inside and out so that you are able to make informed decisions about how much to borrow. We use the ratios as an indicator of the maximum mortgage payments you can carry comfortably, given your own unique personal situation.

While each lender has unique guidelines for how high your ratios may go, try my Free Calculators today for more insight into how much you could qualify for. The rule of thumb is that no more than between 35-40% of your income should go to monthly payments(including your mortgage!).

Beyond this, there are many other factors to consider and you should always consult a professional to get a better perspective on the whole picture when making decisions about your mortgage and home purchasing decisions.

If you would like to get the most up-to-date information in Kamloops, BC on your Home Purchase, Mortgage Refinance, or Mortgage Renewal, please 'Like' our Facebook page and follow me on Twitter and Pinterest.