27 Sep

Mortgage Pre-Approvals & Pre-Qualifications

General

Posted by: Natalya Toney

Throughout the mortgage and home buying process, there are many steps and many checkpoints a buyer will need to complete before they can move on to the next one. A buyer will not be able to close on a purchase if they do not have a lawyer. Financing conditions need to be lifted after confirmation from a mortgage broker that a file is broker complete. A buyer should never write an offer on a home until they have a realtor working for them. Most importantly, a buyer should never be looking at property they are considering buying until they have been pre-qualified and pre-approved.

Now, one thing we need to make clear- pre-qualified and pre-approved are two different things. Pre-qualified is when someone completes a mortgage application with a mortgage broker or a bank representative and is told how much they can afford. Pre-approved is when someone has written confirmation from a lender stating they are willing to lend based on what is stated in an application and the applicant’s current credit history.

The difference?

Pre-qualifications are based solely on the knowledge and experience (sometimes even opinion) of a broker or bank rep. A pre-approval on the other hand is backed by the lender actually willing to give you the money. When someone says they are pre-qualified, that means they have taken an application with a mortgage broker or bank and in broker or bank rep’s opinion, they can afford “x” amount on a home. A pre-approval is a written letter from a lender stating based on applicants current credit history, declared income on application and current assets, we will lend “x” amount pending confirmation everything stated in the application is verifiable and the property meets all lender requirements.

As you can probably tell, one can be more reliable than the other, especially if you are working with a mortgage broker or bank rep that is inexperienced in the industry. Pre-approvals also usually come with a rate hold. What a rate hold does is guarantee you the interest rates that lender is offering today for a certain amount of time (usually 120 days), and if you put an offer on a place within that time period, they will give you that previous rate even if they went up. If rates go down, they will allow you to access the lower interest rate as well.

You must always get yourself pre-qualified before you begin looking at homes so you know what you can afford. Once you have and you are actively looking, it is very important you try and get a pre-approval before you write an offer. It will give you that extra confirmation your application is acceptable, and protect you against interest rate increases while you look.

If you require a pre-qualification, pre-approval, or want to speak with someone about your current situation, please give me a call.

27 Sep

High Ratio and Conventional Mortgages – LENDMORE FINANCIAL

General

Posted by: Natalya Toney

There are two different types of mortgages when it comes to their balance in relation to the value of your home- high ratio or conventional.

When you applying for a mortgage, lenders use a ratio called loan to value. Your loan to value is exactly what it sounds like, the size of your mortgage in relation to the value, written as a percentage.

For example, if you have a $500,000 home and your mortgage is $300,000 and your down payment/equity is $200,000, your loan to value is 60%. This means that the bank owns 60% of your home and you technically own 40%, because if your house sold for $500,000, you would only get $200,000 as the remaining amount goes to the lender to pay out your mortgage.

When some one says high ratio and conventional mortgages, that is referring to your loan to value. If your loan to value is more than 80%, you have what is called a high-ratio mortgage. A high-ratio mortgage is when you own less than 20% of your home. You will also be required by law to pay what is called mortgage default insurance to help protect the lender if you were unable to maintain your mortgage payments.

A conventional mortgage is when you own 20% or more of your home and your mortgage amount is less than 80% of the value of your home. You do not need to pay mortgage insurance premiums if you purchase a home with 20% or more as well. When refinancing your home and borrowing against your equity, lenders are not allowed to increase your mortgage to an amount above 80% of your homes value. This means, if you own less than 20% of your home, you cannot refinance or take equity out.

You are also not allowed to purchase a rental property and receive a high ratio mortgage as you are required to put 20% down. Conventional and high ratio mortgages will also affect your interest rates as most lenders incentives high ratio buyers to work with them by offering lower interest rates.

There are several other categories when looking at loan to value and what each one can give you in terms of borrowing power, however, when it comes to high ratio and conventional, these are the biggest differences.

If you have any questions relating to high ratio or conventional mortgages, contact your local Dominion Lending Centres mortgage professional.

26 Sep

5 Mistakes First Time Home Buyers Should Avoid

General

Posted by: Natalya Toney

Buying a home might just be the biggest purchase of your life—it’s important to do your homework before jumping in! We have outlined the 5 mistakes first time homebuyers commonly make, and how you can avoid them and look like a Home Buying Champ.

1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford. Your Mortgage Broker will give you the maximum amount that you can spend on a house but that does not mean that you should spend that full amount. There are additional costs that you need to consider (Property Transfer Tax, Strata Fees, Legal Fees, Moving Costs) and leave room for in your budget. Stretching yourself too thin can lead to you being “House Rich and Cash Poor” something you will want to avoid. Instead, buying a home within your home-buying limit will allow you to be ready for any potential curveballs and to keep your savings on track.

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment but fail to realize that there are a number of costs associated with closing on a home. These can be substantial and should not be overlooked. They include:
• Legal and Notary Fees
• Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
• Home Inspection fees
There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. Updated kitchen + bathrooms, beautifully redone flooring, new appliances…what’s not to like? But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:
• When was the roof last done?
• How old is the furnace?
• How old is the water heater?
• How old is the house itself? And what upgrades have been done to electrical, plumbing, etc.
• When were the windows last updated?

All of these things are necessary pieces to a home and are quite expensive to finance, especially as a first- time buyer. Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
In a red-hot housing market, a new trend is for homebuyers to skip the home inspection. This is one thing we recommend you do not skip! A home inspection can turn up so many unforeseen problems such as water damage, foundation cracks and other potential problems that would be expensive to have to repair down the road. The inspection report will provide you a handy checklist of all the things you should do to make sure your home is in great shape.

5. Not Using a Broker
We compare prices for everything: Cars, TV’s, Clothing…even groceries. So, it makes sense to shop around for your mortgage too! If you are relying solely on your bank to provide you with the best rate, you may be missing out on great opportunities that a mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.

Remember, when you are buying a home, you are not alone! The minute you decide to work with a Dominion Lending Centres Mortgage Broker you are bringing on a team of individuals who are there to help you through the process from start to finish.

26 Sep

Mortgage Brokers can Help you Get Financing for Every Stage of Your Life

General

Posted by: Natalya Toney

Buying a home can feel like a journey. Whether it’s your first place or 10th, there are so many steps to go through and things you need to know. While you could try to secure financing on your own, at some point you’re going to need the help of a professional. And that’s where a Dominion Lending Centres mortgage broker can help. They are your tightest companion on the road to home ownership.

The trend towards using mortgage brokers/agents to arrange mortgage financing is continually increasing. Why has this shift occurred? Well, very simply put, TOP-NOTCH SERVICE and UNBIASED ADVICE!

The banks are cutting back on staff and are centralizing operations to save money. This doesn’t bode well for the consumer. Unlike individual banking representatives, who often move from one branch to another hoping to advance in the corporations, your mortgage advisors work to form lifelong relationships with their clients.

Today, many banks are buying out smaller trust companies to expand their portfolios. Most major banks lend out money through these trust arms at reduced rates. If you just stick with your bank, you lose access to hundreds of other financing arms – including offerings from multiple banks, credit unions and trust companies that may have better rates, products and terms to offer you.

Mortgage brokers get paid by the lenders so their service is offered to you without charge. What else can you ask for? Better rates, personalized service, flexibility and products at no cost to you. Some will say that the fee is built into the payment, but this is not so.

It costs the banks approximately 40 per cent less to generate a mortgage through a broker than a branch, as there is no overhead to pay if the bank doesn’t get a client’s business. Instead, the mortgage broker bears the entire cost of day-to-day business activity.

25 Sep

Fixed Rates Outweighing Variable – Lendmore Financial

General

Posted by: Natalya Toney

We are currently in a very unique situation when it comes to 5-year fixed and 5-year variable interest rates. For the first time in almost a decade, the lowest 5-year fixed interest rate is more than 0.30% lower than the lowest available variable interest rate for new mortgages. For some, their current variable rate is 0.80% higher than what a new 5-year fixed interest rate could be.

Why is this important?

Variable mortgage penalties are only equivalent to 3 month’s interest. On a $400,000 mortgage with a net variable rate of 3.10%, the penalty would only be $3,100 ($775 per $100,000 of mortgage debt).

What are the savings to switching to a lower rate?

The following is an excerpt from an email we have sent several clients recently. The numbers have been adjusted from their originals to protect clients.

$2,152.76 current monthly payment
$437,857.16 current outstanding balance
4 years and 0 months remaining on term and 24 years and 0 months remaining on amortization

$3,800 approximate penalty to break mortgage including discharge fee (legal fees and appraisal covered)

$2,061.88 new monthly payment on 5-year fixed rate
$437,857.16 new outstanding balance
4 years and 0 months remaining on term and 24 years and 0 months remaining on amortization

$90.88 savings per payment

Interest paid with current lender for remainder of term: $50,847.29
Principal paid with current lender for remainder of term: $52,485.19
Remaining balance at end of term: $385,371.97

Interest paid with new rate for remainder of term: $44,025.53
Principal paid with new rate for remainder of term: $54,944.71
Remaining balance at end of term with new rate: $382,912.45

For $3,800, this client has the potential to save almost $6,800 in interest, save $90.88 a month, while at the same time owing less on their total balance at the end of their term.

Now, this might not be for everyone. Variable, as you know, can go up and down. Locking into a 5-year fixed rate also takes away your ability to get out of your mortgage for only 3 months interest penalty compared to staying in a variable rate. For some people, maintaining the variable for an opportunity of having that rate drop below current 5-year fixed rates is worth waiting too.

There is no right or wrong decision. It is how you want your monthly payments structured and how much risk you want to allow for, both in rate variances and potential penalties.

To find out what kind of savings you could see with moving your variable rate into a fixed rate, please, contact a Dominion Lending Centres mortgage professional today.

25 Sep

Lendmore Financial – Mortgage Protection Plan

General

Posted by: Natalya Toney

Mortgage Protection Plan

Insurance coverage is something that everyone is “pitched” at some point or another in their life. Unfortunately, a lot of us have a negative attitude towards insurance or warranty as it is perceived as being a cash grab. Yes, if you are purchasing a flat screen T.V., that extra 2-year warranty for $100 might be a little excessive. However, when it comes to covering monthly mortgage payments or the outstanding balance of your mortgage upon death or injury, yes, it is important to have.

Every single person is offered life and disability insurance when applying for a new mortgage. As a mortgage broker, it is our obligation to offer you Manulife’s Mortgage Protection Plan. Even if it is something you do not want or do not have a need for- we still require a signature confirming it was offered. Reason being, is when John Smith breaks his foot two years down the road and can’t work to cover his mortgage payments, Manulife needs to confirm that the client passed on the opportunity to have their payments covered.

Now, is Manulife’s mortgage Protection Plan, or, MPP as it is known, the most comprehensive coverage out there? No.
Is MPP better than any coverage you are ever going to receive from a bank directly? Yes.

Manulife’s MPP is a 60-day money back guarantee, with coverage that follows you lender to lender. It will cover disability injuries preventing you from work, and is underwritten before your coverage begins, not when a claim is made.

Most banks do not allow you to take their mortgage insurance to another lender. So, if after 10-years of paying your premiums you decide to leave your bank and go to a credit union, your coverage is no longer in affect and all that money you spent on your monthly premiums is now worth nothing. Scariest part about bank coverage, is the health evaluation is done when a claim is made, not when you sign up. Can you imagine not making a claim for 20-years and then being declined on coverage because you have developed health issues not relevant when you signed up in your 20’s?

If Manulife Mortgage Protection Plan is not for you, there are insurance brokers out there we have access to who can offer alternative solutions. The biggest thing though is to make sure you have SOME coverage, because you won’t know you need it until you do. If you have any questions, contact a Dominion Lending Centres mortgage professional for help.