21 Oct

CREDIT RATING AND DEBT SERVICING A MORTGAGE

General

Posted by: Patti MacLennan

It is great feeling buying your first home, but for most of us the first step is preparing to get a mortgage.
Your credit rating and cash flow are based on a minimum of a two-year history.
As mortgage rules continue to change, the credit rating is becoming even more important as a higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.
Your credit is made up of many things that the lenders will look at.

Character, it is determined by:
• Paying your bills on time.
• No Delinquent accounts
• Available credit – Are you using all or most of your available credit? That is not a good thing. You are better off to increase your credit limit than to use more than 70% of your limit each month. If you need to increase your score faster use less than 30% of your credit limit, and if you need to use more, pay your credit cards off early so you do not go above 30% of your credit limit.
• Your total out standing debt is considered.

Capacity: this is your ability to pay back the loan. Capacity also covers cash flow vs debt. Your employment history. How long have you been with your current employer, are you self employed, for how long? Capacity is not what you think you can afford, it is what the lender thinks you can afford based of the debt service ratio.

Capital: how much have you saved? How much do you have for a down payment and where does it come from?

Collateral: Lenders consider the value of the property and other assets as they want to see a positive net worth. If you have a negative net worth you may not be able to get a mortgage.

Not having one of these areas in order could prevent you from getting a mortgage.
Contact you Dominion Lending Centres mortgage specialist for a free review of where you stand.

Written by Kevin Bay

20 Oct

SAVING FOR A DOWN PAYMENT

General

Posted by: Patti MacLennan

SAVING FOR A DOWN PAYMENT

What prevents many potential homeowners from buying a home is the lack of a down payment.
Many first-time home buyers are receiving down payment gifts from family.

Unfortunately, many are not in this position and need to plan to save their own down payment.
When you can visualize the benefits of owning your own home and it becomes your number one desire, most of us can save that down payment.
Every time you feel like spending money that is not a need and takes away from you down payment, consider what you could be giving up, your home.

I recently did a mortgage for a couple buying their first home. During the process, they told me that 25 years ago they moved into a brand new rental home and they just finished paying off the landlords mortgage. The house had gone up about $800,000 in value over the 25 years. If the couple would have had their down payment and bought the home they would have a home worth over $1,000,000 paid for.

Here are some tips 
Avoid borrowing money for a depreciating asset like a car or furniture. Did you know that most people who buy furniture interest free for a year do not pay it off and end up paying about 29% interest on that loan?

Open a Tax Free Savings Account (TFSA) and start contributing monthly. Try and maximize what you can put in the TFSA. Turn it into a game and see how fast you can make it grow. Remember the end game is your own home.
The Business Insider reports that 62% of your expenditure is spent on three areas: Housing, transportation and food. Focus on cutting down expenses in these areas and put the extra money in your TFSA. It may be tight living in a smaller place for a few years or even staying at home for a few years to save up that down payment, but if you could look down the road 25 years and have a choice of buying your first home or owning a million-dollar home with no mortgage, what would you choose? You need to keep that vision of owning you own home if front of you to make the sacrifices worth it. The longer you rent the more you are paying off someone else’s home.

I read a stat that 43% of the annual food cost are eating out. Then there are prepared meals that involve no cooking that when included add up to 60% of your food budget. I recently had a friend that stopped eating out and is now putting about an extra $350 a month in his investment account.
Create a budget, control your spending, and buy groceries on sale. Use the Flipp app and find the lowest price on main items and price match. You can save $100’s of dollars doing this.
All these savings can go into your TFSA. Ask friend for their money saving ideas. Stay focused and before you know it you will have your down payment.

If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

Written by Kevin Bay

19 Oct

HOW TO INVEST IN CANADIAN REAL ESTATE-FROM ABROAD

General

Posted by: Patti MacLennan

HOW TO INVEST IN CANADIAN REAL ESTATE-FROM ABROAD

Just because you are a Canadian citizen living abroad doesn’t mean that you are exempt from the rules for foreigners buying real estate in Canada.
Foreign ownership applies if:
• You don’t reside in Canada for more than 6 months a year (even if you are Canadian)
• You don’t report your working income to CRA
So how does one go about gaining purchasing property in Canada when you are a foreign buyer?

1. Understand Your Employment Status

For your employment status, there are two categories you may fall into: Business for Self or not Business for Self (employed by someone else).

If you are Business for Self, you must meet the following requirements:
• Be in business for a minimum of 2 years
• Verify 2 years of business for self through something equivalent or similar to yearly financials.
• Verify current year’s financial history (personal & company if applicable)

On the other hand, if you are employed by someone else, you only need to show a letter of employment and your latest paystub.

2. Understanding Down Payment Requirements

Down payments for foreign investment in property have a few requirements as well. The down-payment typically will need to be 35% down. The exemption to this and when 25% down would be accepted, would be if you are a Canadian citizen living abroad or if you are a US citizen.

Another requirement, the money for a down payment and closing costs must be on Canadian soil 30 days prior to the completion date (with exception of 15 days depending on the lender and circumstances). Lenders may also require a deposit of 12 months’ principle and interest payments in a Canadian account.

The other and final requirement for a foreign real Estate investment is to have a Canadian bank account registered in your name.

3. Understanding Your Financial Profile

Your unique financial profile may need to feature a number of different things. This may include:
• International credit bureau to view your credit history
• A bank reference letter
• All current debts you have outstanding

Once we have compiled that information and any other that is required, it is on to the next set of requirements: Property requirements!

Property and Loan Requirements

For foreign real estate, there are a few conditions the property and the loan will have to meet. First is the type of property. The property can be owner occupied, a second home, or an investment property. Next, in terms of the loan, there are two things that need to be considered. These are the rates and the length of the loan. The rates will be the best discounted rates your mortgage broker can get at the time of purchase. As for the length of the loan, the term of the contract can be up to 10 years long, with an amortization of the loan of 25 years and up to 30 years on exception.

Final Take-Away

Purchasing foreign real estate does not need to be difficult. The best advice is to stay transparent, open and follow the requirements. As an extra piece of advice, here is a checklist to follow to make it go even easier:

• Proof of “out of Canada” permanent resident address
• Contact and use a Canadian solicitor/lawyer who is familiar with foreign investors
• Contact and use a Realtor familiar with foreign investment purchase.
• Be prepared to have to make a physical appearance in Canada to complete the purchase transaction
• Ensure you have the ability to transfer monies from your Canadian bank account to the TRUST account set up by your Canadian Solicitor/Lawyer’s firm.
• Be prepared for the purchasing process to take 30 days or longer

One last consideration. As of August 2, 2016, the Ministry of Finance of British Columbia has applied an additional 15% property transfer tax to certain BC residential property purchases to anyone who is a foreigner (or foreign entity such as a corporation).
a. This is applied only to the Greater Vancouver Regional District – please contact GLM Mortgage Group for an exhaustive list of the areas affected.
b. This affects anyone who are foreign nationals including foreign corporations or taxable trustees.
* Please note that the corporation can be incorporated in Canada. However, if the corporation is controlled in whole or in part by a foreign national or other foreign corporation the tax applies.
c. The additional tax applies in addition to the general property transfer tax.
d. The additional tax does not apply to non-resident property (commercial properties).
e. The additional tax will be paid with at the statement of adjustments when signing at the lawyer’s office.
f. There are heavy fines associated with avoidance of this tax (ie purchasing a property through a Canadian relative who holds the property in trust) and can even result to up to two years in prison.)

The only way that this foreign buyers tax is exempt for a nonresident when purchasing in the Greater Vancouver Regional District are borrowers that have a current work permit/visa and will maintain the property as their primary residence and reporting and paying taxes in Canada

In closing, if you follow the basic steps laid out in this article and work with a skilled broker you can get into your Canadian property faster, easier, and with minimal stress! If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

Written by Geoff Lee

18 Oct

AVOIDING “STICKER SHOCK” WHEN IT COMES TO MORTGAGE RENEWAL

General

Posted by: Patti MacLennan

Imagine that, a few years from now, the time has come to renew your mortgage.

Several years back, you got a $350,000 at the then great rate of 2.24%. Your mortgage payments are $1522 per month.

Because we are now in what the financial brainboxes call “ an escalating rate environment “ – normal people just say rates are going up – when you open your renewal notice you might encounter the same feeling you get when you look at the price of a car you like.

When you actually do look at the renewal notice, you see that the remaining balance on your mortgage is now $294,662, the new ( very competitive rate ) is 3.25% and that the new payment is $1668, actually $150 dollars a month MORE than you were paying previously. You think “WHAT THE….???”

This type of sticker shock is a new sensation to an entire generation of Canadians. Brokers are fond of talking about the fact that rates had not moved in 7 years but we rarely talk about the fact that rates have been trending down for more than twenty years and chances are, if you’ve had a mortgage for any time during that period, the payment at renewal has always been lower than when you started out.

‘Well, what’s to be done’, you ask? ‘How do I avoid “sticker shock”?

The key to avoiding that sinking feeling is to increase your payment slightly every year. You can find out how much to increase it during your Annual Mortgage Review. By increasing your monthly payment by even 2% a month, you can potentially avoid that sinking feeling – and pay off your mortgage even faster!

But wait; “Annual Mortgage Review? Qu’est-ce que c’est”, you ask.

An annual mortgage review, done with either your mortgage provider’s representative or your own mortgage representative ( i.e. your friendly Mortgage Professional) is just a quick check up to discuss what the current balance is, how things are going and do a quick review of your early payment privileges, increased payment privileges and potential prepayment privileges.

Its best to have these annually because , well, the average human needs to be shown the same information seven times to learn it – save time and start today. If you have any questions, please contact your local Dominion Lending Centres mortgage specialist.

Written by Jonathan Barlow

17 Oct

CANADA’S BANKING REGULATOR RAISES BAR FOR UNINSURED MORTGAGES.

General

Posted by: Patti MacLennan

A real estate sign is pictured in front of a Vancouver home.

BEN NELMS/THE GLOBE AND MAIL

Canada’s banking regulator has modified its controversial new mortgage stress-testing rule, ensuring home buyers will not have an unintended incentive to sign up for shorter-term mortgages.

The Office of the Superintendent of Financial Institutions published revised final guidelines Tuesday for its mortgage qualification rule, which requires buyers making down payments of more than 20 per cent of a home’s value – who do not need mortgage insurance – to prove they could still afford their mortgage payments if interest rates were 200 basis points (two percentage points) higher than the rate they negotiated.

Some real estate and lending organizations criticized the proposal because they said it would give borrowers an incentive to favour shorter-term mortgages because they typically have lower interest rates, making it easier to pass the stress-test standard. Critics said it would leave borrowers in a riskier position because they would be more vulnerable to interest rate increases with mortgages that come up for renewal more often.

Read also: OSFI’s proposed mortgage stress test is unnecessary, harmful: study

In the final version of the guidelines Tuesday, OSFI added an additional feature to its original proposal, saying buyers would have to qualify at the greater of the five-year benchmark rate published by the Bank of Canada or the original contractual rate plus 2 per cent. That means borrowers seeking short-term mortgages would still have to meet a higher stress-test hurdle, removing the benefit of choosing a shorter term.

OSFI superintendent Jeremy Rudin said the original proposal would have meant someone who wanted to borrow right up to their maximum limit would have had an incentive to search out the lowest-possible interest rate, which “might well” be the shortest-term mortgage.

“We didn’t want to create an artificial incentive for borrowers to shorten term because of the regulation,” Mr. Rudin told reporters on a conference call Tuesday morning.

Mr. Rudin said OSFI has made the mortgage changes because it was concerned about the risks to the lending system that are posed by high household indebtedness, rising interest rates and growing property values in some large cities.

“While we think sound underwriting is always important, in these circumstances it’s really never been more important than it is now,” he said.

The new lending rules will take effect Jan. 1, 2018. OSFI said it received more than 200 submissions to its original proposal, published in July.

Industry stakeholders expressed concerns about the original proposal, saying they would be punitive to borrowers. Groups representing home builders, real estate agents and credit unions all voiced their misgivings about the original proposal, with some warning that less-wealthy home buyers could be shut out of the market or forced to accept less-favourable loan terms.

But the leaders of Canada’s largest banks – which are only expected to be minimally impacted by the changes – have generally been supportive of OSFI’s new guideline. On Monday, Royal Bank of Canada chief executive officer Dave McKay said it “is in all our interests” to further dampen rapid growth in housing prices in order to ensure Canada’s long-term growth and competitiveness.

Critics had urged OSFI to hold off on the revisions, arguing too many other changes had already been introduced in the housing sector in the past year, and the industry needed time to absorb the impact.

While OSFI moved ahead, Mr. Rudin said the regulator is done with its changes to mortgage guidelines. But he said if market conditions change, they could require review.

He acknowledged that some borrowers who are considered less credit-worthy might migrate to lenders that aren’t federally regulated, and which typically offer higher interest rates on loans. “That would not be an intended consequence, nor would it be a completely unanticipated consequence,” he said.

But while OSFI has “ongoing contacts” with provincial regulators that oversee many credit unions and alternative borrowers, Mr. Rudin made it clear he thinks federally-regulated lenders are his sole responsibility. “We can’t control what we can’t control,” he said.

On Monday, RBC’s Mr. McKay voiced his concern that if risky borrowers simply migrate to alternative lenders outside federal regulations, “then you haven’t solved the problem, have you? So that’s the back door to this whole strategy that they have to be careful of.”

Mr. Rudin countered that if borrowers find other alternatives to get a mortgage, “there’s no loss there.” From his perspective, moving high-risk borrowers out of institutions OSFI regulates “has got to be good for the stability of the federally-regulated sphere,” he said.

“We are very aware of the potential, let’s call it, migration risk,” he added. “And as I said, that does not change our mind that this is a valuable initiative. It might be even more valuable if we didn’t have the migration issue, but it’s still net positive.”

Should interest rates rise significantly, OSFI is prepared to “revisit” the stress test, Mr. Rudin said, but he expects the new rules to be “durable” in the near term. Yet some industry observers wonder whether the regulator is equipped to respond quickly enough to rising rates.

“The fear is that if OSFI does revisit the stress test, it could be too late,” said Rob McLister, founder of RateSpy.com, a mortgage-rate comparison website. “By the time rates surge [by 150 to 200 basis points or more], a whole swath of buyers would already be shut out of the market leaving home prices to fall on their own weight before the regulator can react.”

Financial services analyst Robert Sedran from Canadian Imperial Bank of Commerce said there is no doubt new mortgage growth will slow in Canada as more people qualify for smaller mortgage amounts under the rules, but said the question now is the impact they will have in combination with several other regulatory changes that have been introduced in the past year by various levels of government.

“Our only remaining concern is the risk that all these changes will act in concert to create a more pronounced slowdown than any one regulatory body intended,” he wrote in a research note Tuesday. “The answer to that question will only emerge in time.”

Mr. Sedran said he has already taken into account an anticipated slowdown in new mortgage writing in his estimates for major banks’ financial results going forward, and will not adjust them further based on the final rule changes announced Tuesday.

OSFI’s guidelines Tuesday also clarified that borrowers who are renewing existing mortgages will not have to meet the new stress test standard as long as they are staying with the same lending institution. However, renewals done with another lender will have to qualify under the revised standards because they require new underwriting.

17 Oct

THE IMPACT OF MORTGAGE RULE CHANGES

General

Posted by: Patti MacLennan

The mortgage rule changes that were passed by the Ministry of Finance in October 2016 are still having their effect one year later. Higher qualification requirements and new bank capital requirements have split the industry into two segments – those who qualify for mortgage insurance and those who don’t.

Mortgages that qualify for mortgage insurance are basically new purchases for borrows that have less than 20% down and can debt-service at the Bank of Canada Benchmark rate (currently 4.89%). Those who don’t are basically everyone else – people with more than 20% down payment but need to qualify at the lower contract rate, and people who have built up more than 20% equity in their homes and are hoping to refinance to tap into that equity.

The biggest difference we are seeing is two levels of rate offerings. Those that qualify for a mortgage insurance by one of the three insurers in Canada (CMHC, Genworth and Canada Guaranty) are being offered the best rates on the market. Those who don’t qualify cost the banks more to offer mortgages due to the new capital requirements and so are offered a higher rate to off-set that cost.
Dominion Lending Centres’ President, Gary Mauris, wrote a letter to the Prime Minister and the Minister of Finance at the beginning of October 2017 outlining the negative impact of those changes on Canadians on year later. That letter was also published in the Globe and Mail. CLICK HERE to see that letter.

But even more alarming are the rumblings being heard about another round of qualification changes that will see those who have been disciplined in saving or building equity having to qualify at a rate 2.00% higher than what they will actually get from their lender.
Where the first round of changes in 2016 saw affordability cut by about 20% for insured mortgages, this new round of changes will have much the same impact on the rest of mortgage borrowers – regardless of how responsible we’ve proven to be.

The mortgage default rate in Canada is less than 1/3 of a percent. We Canadians simply make our mortgage payments. So where’s the risk?
The new qualification rules are intended to protect us from higher rates when our current terms come to an end. But when most Canadians are already being prudent, borrowing at well below their maximum debt-to-income levels the question now is why do we need to be protected from ourselves?

The latest round of rule changes are rumoured to be coming into effect by the end of October 2017 so my word of advice to at least those who have been contemplating a refinance to meet current goals? Contact your Mortgage Professional at Dominion Lending Centres to find out your options before your window of opportunity is closed.

Written by Kristen Woolard

17 Oct

LESSONS FROM THE ASHES

General

Posted by: Patti MacLennan

This story appeared in the Fall issue of Our House Magazine.

The Fort McMurray fire and subsequent reconstruction demonstrates the necessity—but also the limitations—of home insurance in the face of natural disasters

Tuesday, May 3, 2016, isn’t a day Lisa Reesik will soon forget. It started out beautifully, without a single cloud in the blue northern Alberta sky.

While there was a wildfire burning outside Fort McMurray, a city of more than 80,000, it wasn’t a major concern for residents like Reesik. That day, the mother of two went to work and carried on business as usual. Even as she went to lunch with co-workers, there was no sign of what was to come. But by 1 p.m. the skies over the town turned ugly, quickly.

From downtown, Reesik could see the smoke swallowing up Abasand and Beacon Hill, the neighbourhoods her family of four called home for 16 years. “It was like something out of a movie,” she tells Our House magazine. “There was smoke, but you knew there were flames.”

When word came the fire jumped the Athabasca River that bisects the city, Reesik left work and headed for home to pack what she could. She grabbed a few documents and a garbage bag full of clothes for her kids and husband and headed to her brother’s place to meet up with the rest of the family.

As she left her home, she prayed the blaze wouldn’t take out her aunt’s house, which was much closer to the conflagration. Eventually her entire extended family met up and headed north out of the city for safety. Reesik’s husband, Robin, who worked for the energy company Suncor, was evacuated to the south of Fort McMurray. But there was no way out to the north so, not feeling safe, the family decided to make a break for it and go back through town to the south.

At 9:30 p.m., the family crossed back into Fort McMurray amid rumours the fire had taken out much of the city’s major structures. The smoke was so thick, she could only see a few inches in front of her car.

An hour later Reesik got a call from a friend.

“She said, ‘I’m really sorry, your home is gone,’ and began to cry,” Reesik recalls. “I said, ‘It’s OK.’ I knew in my belly it was gone at 5:30. I just had this overwhelming sense that it was gone. I really thought when I looked at the city in the rearview mirror, I would never be back because there would be nothing to come back to.”

Nine hours later, the family was reunited in Lac La Biche, a couple of hundred kilometres south, where they would call a camper home for the next two months.

“You felt as though you had cheated death,” she says. But Reesik also knew her family had every intention to rebuild. Fortunately, she and husband had purchased the right amount of insurance for the home and their mortgage. They used their insurance to keep paying the mortgage and minimized their spending until Robin was able to return to work. When it was time to rebuild, they also relied on their mortgage provider to help them get a construction mortgage and find the right contractors to do the work properly.

The family has been renting a home in the meantime, but plans to move back to their new home this fall.

“We had so much we had built up and our lives together, we wanted it back,” she says. “I wanted my kids to see I was Ok despite it all, and they would be OK despite it all.” The Reesiks had also purchased replacement insurance, which means in the end, they would not be out of pocket for the entire ordeal.

But not everyone was so lucky. The Fort McMurray fire, the most costly natural disaster in Canada’s history, was an eye-opening experience for even seasoned mortgage professionals. Charlene Elliott is a DLC mortgage broker in Fort McMurray and her memories of that fateful time are just as vivid. When word went out to evacuate the city, she was at the airport watching the flames race through town. At the same time her husband and kids were trying to get out.

“It’s surreal. You really can’t believe you’re living through it,” Elliott recalls. The family basically escaped with the clothes on their backs, eventually making it to Calgary for a few days and spending almost a month in Edmonton before returning in June 2016.

Despite living in a hard-hit neighbourhood, Elliott’s home was spared. The roof was singed and needed to be replaced, but that was about it.

Still, as she goes about her job helping people get mortgages, she’s quick to insist her clients get proper insurance coverage.  “I tell my clients, you have to make sure you have full coverage,” Elliott says. “Don’t cheap out on your insurance premiums because you think you’re fully covered… [People] felt it when [they] came back.”

She notes that after the evacuation, the banks and lenders were good about holding payments while people put their lives back together. In Elliott’s case, she deferred her payments for three months. Some lenders allowed deferrals for up to six months. When it came to the rebuilding stage, in some cases lenders would make the homeowner pay off the mortgage from insurance and then do a builder mortgage, she says, while some would pay the builder through construction.

In the end, the fire destroyed 2,400 structures and triggered insurance payouts estimated over $4 billion, the highest total for any such event in Canada. But there are few places across the country immune to a natural or human-caused disaster. B.C.’s south coast is awaiting a major earthquake, flooding is common in the prairies and ice storms can batter Quebec and the Atlantic provinces.

The Canada Mortgage and Housing Corporation has a mortgage loan insurance program, but it protects lenders against mortgage default and is not standard all-risk insurance. “This means that physical damage to a house due to a natural disaster would typically be covered by the homeowners’ property insurance policy. Lenders are required to ensure standard all-risk insurance is in place to protect against loss or damage to buildings and their contents,” a CMHC spokesperson noted in an email to Our House.

The email also explained that in exceptional situations, CMHC may offer special arrangements to support homeowners affected by natural disasters. The government agency recently extended a number of flexibilities to lenders to assist Canadians who may be affected by fires this past summer in western Canada.

Aly Kanji is the president and CEO of InsureLine Inc., a national insurance provider who’s seen firsthand just how unprepared people are for a disaster to strike, natural or otherwise. “One of the things that most people don’t appreciate is that you’re still making your mortgage payments while the repairs are getting done,” he says, adding that it can be a big deal when you have to find a place to rent and still make a payment. The typical insurance policy includes fire and liability, but there is an option to buy a comprehensive policy or specified perils policy that will cover you for more.

Kanji suggests that there is a misconception about the types of events you can be insured for and who will be around to help. For instance, in most parts of B.C., you can purchase earthquake insurance. However, he points out that it’s quite different than regular insurance in that the deductible is usually five, eight or 10 per cent of the total coverage amount. It’s possible to buy a separate policy to lower the deductible to the usual cost of a policy.

He also observes that the government isn’t going to help cover a home if insurance was available. The federal government did step up during the Alberta floods of 2013, but that was because insurance that would have covered widespread, natural flooding wasn’t available in Canada at the time.

Kanji also argues that people often don’t buy enough insurance. They think $20,000 to $30,000 for replacement insurance can get them through a disaster, but the costs can add up quickly. For a typical apartment, he estimates $60,000 to $80,000 is adequate. “That’s the problem: no one thinks they’ll have to use the product,” he says.

Kanji has some advice for new homeowners: It’s Important to take the time to understand what’s available. You only have to do it once.

Back in Fort McMurray, Reesik and her family are waiting to move into their new home. But it’s not likely to be joyous occasion. The past year has been difficult for the family, and she admits it will be a big adjustment. “I think it’s going to be hard, to be honest,” she says. “It’s going to take time to make it [feel like] home.”

Written by Jeremy Deutsch

16 Oct

BANK OF CANADA RATE CHANGE-SHOULD I LOCK IN?

General

Posted by: Patti MacLennan

This month, the Bank of Canada increased their lending rate for the 2nd time in as many months. The changes in the Prime Lender Rates means that those with a variable mortgage rates will have seen that their mortgages rates adjusted alongside the changes to Prime Rate. For those of you with variable rates, the first thing that probably crossed your mind was “should I lock in?”

Even though your interest rate may have increased, it does not mean that you should immediately lock into a fixed rate mortgage. An associate from B.C, Dustan Woodhouse had this to share about the increase:

“If your discount from Prime (now 3.20%) is 0.50% or deeper – then the variable rate product remains a really great place to be.

If your discount from Prime is 0.25% or less, then depending on which lender you are with you may consider converting to a fixed rate, BUT…

Keep in mind the penalty to prepay (i.e. refinance or sale of property) a variable early is ~0.50% of the mortgage balance, whereas if in a (4yr/5yr or longer) fixed rate mortgage the penalty can be closer to 4.5% of the mortgage balance ***depending upon which specific lender you are with and how long of a term you lock in for.

It is usually to the lenders greater benefit that you lock into a fixed rate, rarely is it to your own benefit.”

I could not have summarized it any better myself, so I won’t try.

So what should you do?
The first thing that you should be doing is avoiding the immediate draw or feeling of “I need to lock in”. There are several different aspects of your mortgage and personal financial situation that should be considered prior to locking in. There are many questions to ask yourself prior to locking in and most of which the lenders are unlikely to ask you. Your lender is re-active, not pro-active – you need to be pro-active. And sometimes being pro-active results in no action being taken at all.

Simply because the Bank of Canada increased interest rates twice, this does not immediately mean that they will do it again. There are many economic factors outside of their control that will impact their decisions regarding future potential increases.

Presently, the key is not to react quickly. If you have questions about your specific situation and how the increase may impact you, feel free to give Dominion Lending Centres mortgage specialist a call to chat about things in more detail. Allow us the opportunity to ask the questions that need to be asked prior to making a quick switch.

Food for thought…
Back in 2010 rates increased 0.25% three times, and that sat stagnant for nearly five full years before two 0.25% decreases back downward.

In other words the last time Prime was pushed as high as it stands today, it sat there for five full years. And was then cut.

The next Bank of Canada meeting is October 25, 2017.

Written by Nathan Lawrence

15 Oct

BOOMING GROWTH IN CANADA TAKES A BREATHER

General

Posted by: Patti MacLennan

BOOMING GROWTH IN CANADA TAKES A BREATHER

3594f5f5-eaee-441e-a30c-81222058f38aCanada’s second-quarter gross domestic product (GDP) growth of 4.5 per cent triggered two back-to-back rate hikes by the Bank of Canada. But today, Statistics Canada released data showing a slowdown in the monthly industry data for July. Canadian GDP held steady in July ending an eight-month streak of cosmic expansion. This slowing is consistent with the Bank of Canada’s recently expressed view that the outsized pace of growth over the last year is not sustainable going forward.

Slumping oil and automobile production and a slowing housing market were among the biggest drags on growth in July. The figures seem to show the downturn in housing has become a drag. Credit intermediation was down one per cent, residential construction dropped 0.9 per cent, and activity at real estate agents declined 1.5 per cent. The finance and insurance sector’s decline of 0.6 per cent was the largest since April 2015.

A slowdown from the year-over-year pace of 3.7 per cent is not a bad thing, and there is plenty of room for the economy to continue to grow at an above-potential rate. It is still likely that the economy will grow at a solid 2.5 per cent pace in the third quarter, data for which will be released on Friday, Dec. 1 when we will also see the November employment report.

Monetary policymakers will remain cautious owing to ongoing concerns about the strength of the Canadian dollar, risks associated with the NAFTA renegotiations, and the still below-target inflation readings. Moreover, U.S. trade policy is becoming ever more belligerent as evidenced by the heavy duty imposed on Bombardier, which has caused shock waves throughout Canadian industry. With the stunner of a 219 per cent tariff on Bombardier’s CSeries jets, The U.S. Commerce Secretary Wilbur Ross touted a 48 per cent increase from 2016 in anti-dumping and countervailing cases initiated by the U.S. Department of Commerce. That’s on the heels of a study that found a 26 per cent spike in U.S. trade actions against G20 partners in the first half of this year from the same period in 2016, according to the Center for Economic Policy Research’s Global Trade Alert. The Canadian softwood lumber industry has been tasting this punitive medicine for months. These U.S. trade policies create uncertainty across the manufacturing sector, including those supplying raw materials. The aggressive move threatens to disrupt the well-integrated manufacturing processes between Canada and the U.S., with industries such as steel and aluminum smelting possibly hit by collateral damage from the trade talks.

Today’s report is the last set of GDP data before the Bank of Canada’s next rate decision on October 25. Governor Stephen Poloz said earlier this week policymakers would proceed “cautiously” as they gauge the impact of the two interest rate increases.

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

14 Oct

WHAT YOU NEED TO KNOW BEFORE YOU BORROW MONEY FOR YOUR SMALL BUSINESS STARTUP

General

Posted by: Patti MacLennan

Deciding to borrow money to launch your small business startup is a big decision. It’s the second biggest decision after deciding to start the business. Since it is a big decision, it requires much thought and research before taking the leap. There are multiple ways to fund a small business startup, and it’s important to know and understand all of them before making a final decision.
Not only can you borrow money to launch your small business startup, you can also invest your own personal savings or give up a percentage of ownership in the company to investors in return for funding. Before making the final decision to borrow money for your small business startup, here are a few things you should know:

Types of Financing

There are a number of different ways you can finance your small business startup. Depending on the amount of revenue the business is generating, how many years the company has been in business, and the business industry, you may or may not qualify for certain types of financing.

Pay Back & Defaulting

When you borrow money to launch your small business startup, you will be required to make monthly payments. You will also have a set “term” to pay back the financing. The term is the period of time you will have to make monthly payments toward the total financing amount you borrowed. This is important because you need to be comfortable making the monthly payments. It has to be something you can afford. I suggest developing a business plan with at least three years of financial projections to estimate what your expenses will be and the amount of revenue the business will generate. This will help you determine if there will be enough money to go around (to cover business expenses and paying back a business financing).
If you default on a financing for any reason it can ruin your personal and business credit. Having a good understanding of how much it will cost you to borrow money to build the business will enable you to plan better and avoid defaulting. It’s good practice to ask a lender what their average interest rates and terms are before you apply so you can estimate what your monthly payments will be. The bottom line is that paying back financing has to be something you are ready for and capable of handling.

Maximum Amount of Debt

Your debt to income ratio and the amount of outstanding debt you have on the business is important in the lender’s decision to give you a small business loan. If your company is a small business startup with no revenue, lenders will pay close attention to your debt to income ratio. As a rule of thumb, your outstanding debts should equal no more than 28% of your total income. (Depending on who you talk to, some people will say it should be no more than 32% to 36% of your total income however, 28% is playing it safe). If you have a high debt to income ratio, you may not be able to borrow money to launch your small business startup.
If your small business startup has some revenue, and you’ve already borrowed money for the business, if you apply for additional financing, the lender may also look at outstanding business debt. As a rule of thumb, you usually can’t borrow more than 15% of your total annual revenue. This all depends on the lender, but keep that in mind if you decide to take out multiple business loans from different lending sources for the business.

How You Will Spend the Money

Some types of financing are restricted to certain business expenses. For example, equipment financing must be spent only on equipment purchases. This includes computers, office furniture, etc. However, financing such as unsecured business lines of credit can be spent on any business expense. This is why it is important to develop a business plan and at least three years of financial projections. Financial projections outline what the money will be spent on. Knowing what the money will be spent on will help you determine what type of business financing will work best for you.

Need Expert Help? Let Us Assist You

If you still need helping figuring out if borrowing money will be right for your small business startup, Dominion Lending Centres Leasing can help. Our team can advise you and will help you analyze your situation to determine whether or not borrowing money to launch your small business startup makes sense. They will also help you figure out what type of financing will work best for you.

Written by Jennifer Okkerse