4 Oct

Mortgage Insurance 101

Bank

Posted by: Kelly Hudson

Mortgage insurance… sounds simple doesn’t it??

For a first-time home buyer, the types of insurance surrounding a mortgage can be confusing, so it’s important to know what insurance covers what.

There are 3 main types of insurance to know about when buying a home.

Mortgage Default Insurance – If you put less than 20% down on a home you are buying, Government rules are you must pay for Mortgage Default Insurance which covers the lender should you default on your mortgage payments.

There are three mortgage default insurers in Canada – Canadian Mortgage & Housing Corp. (CMHC), Genworth or Canada Guaranty) The purchase of this insurance solely benefits the bank/lender.

For more information check out Everything You Wanted to Know about Mortgage Default Insurance

Mortgage Insurance and/or Life Insurance

You’ve just made the biggest purchase of your life: a new home for you and your family.

  • What’s the best way to protect your investment if you die?

Insurance is the answer. But what kind: mortgage insurance or life insurance? 

There are important differences between the two that we’ll examine.

Mortgage Insurance Life Insurance
Tends to be quicker to process. Can take 30-90 days to put into place.
Can be easier to qualify for. With individual owned insurance the medical underwriting is completed up front, so you know what is covered when your policy is approved.
Decreasing benefit – the amount of coverage with mortgage insurance decreases as you pay down the balance each month, while the monthly insurance payments remain the same. If you get coverage for $500K, it stays at $500K until you decide to change it, or your term expires.

Beneficiary is the lender/bank who holds your mortgage. You can designate the beneficiary/beneficiaries.
Mortgage insurance is attached to the outstanding balance on your mortgage. Life insurance is attached to you rather that your debt.
Typically, your mortgage insurance policy pays off the current balance on your mortgage to your lender/bank. The beneficiary(ies) decide what to do with the insurance.  Funds can be used to pay off the mortgage or any other bills (funeral, hospital/home care expenses, living expenses, education etc.).  It’s your money, and you can decide how to use it.
You can cancel anytime i.e. you find an insurance product that suits you better. You can cancel anytime i.e. you find an insurance product that suits you better.
Portability – mortgage broker sold Mortgage Insurance policies are portable. Which means that if you switch lenders or buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable.·         Take note that when the bank offers you Mortgage Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender or property thereby limiting your future financing options. Completely portable.  Doesn’t matter if you buy a different home or switch lenders/banks, life insurance follows you not your property.

Please note:  Mortgage/Life Insurance is not mandatory to qualify for a mortgage.

You have made the biggest purchase of your life… how do you protect yourself and your family?  Many people say they have life insurance through their work, but is it enough?

  • The question you should be asking is – do you currently have enough life insurance in place right now, equal to your mortgage amount?

Top Benefits of purchasing Mortgage/Life Insurance

  1. Peace of Mind – creates a sense of security that your loved ones will be taken care of if you pass on.
  2. Mortgage Can be Paid Off – whereby any other policies that are held will be able to assist with other needs.
  3. Family can Stay in their Home – if there is the unfortunate life event that is the death of the Mortgage/Life Insurance policy holder, the mortgage can be paid off which will allow the family to stay in their home and not become displaced, causing additional anguish.
  4. The Younger you are, the Less Expensive – Which means that insurance is extremely affordable for a young, and likely, first time home buyer.
  5. Good Health = Coverage for Unexpected Illness Later on – After illness strikes, it is more difficult to acquire life insurance.

Mortgage/Life Insurance is an option that anyone with a mortgage should consider. Ask me about a referral for reputable and credible insurance.

While we’re discussing insurance, there are other types of insurance you need to consider as well…

  • Fire insurance – most lenders will want to see that you have fire insurance in place, prior to funding your mortgage to “protect” their investment.

Additional insurance options:

  • Disability insurance
  • Personal content insurance

Mortgages are complicated… BUT they don’t have to be!  You need to protect your investment by engaging an expert.

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Broker
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

12 Jul

What is the difference between a Mortgage Broker & a Mortgage Specialist (hint – specialists work for the bank)!!

BC

Posted by: Kelly Hudson

With the importance of real estate in Canada, it is vital to understand how the various professionals in the sector operate when buying a home.

Sooooooo… what is the difference between a Mortgage Specialist & a Mortgage Broker?

On the surface they sound the same

  • They both arrange mortgages
  • They both can offer advice and help you select a mortgage, right?

WRONG!!!   There are many differences… Let’s check some of them out!

  • A Mortgage Broker works for you!  Their role is to act as a link between you and the lenders so that you do not have to spend your valuable time learning about mortgages and shopping around for the perfect mortgage.  Mortgage brokers do the legwork and negotiate on your behalf for lenders. They are your point of contact for everything related to your financing your home.
    • Bank specialists are employed and paid by the bank and work on the bank’s behalf.
  • A Mortgage Broker can work with many different lenders across Canada, rather than working for one financial institution. Therefore, Mortgage Brokers can offer you more choices with competitive rates and terms including: Big banks, Credit Unions, Trust Companies, Monoline Lenders (broker only banks), private lenders.
    • Usually Mortgage Specialists only have access to their lender’s products. In a typical situation, homeowners could end up with a higher interest rate than other institutions. This occurs because the homeowner must negotiate for themselves and Mortgage Specialists are usually paid according to the rate they sell you.
  • A Broker must successfully complete a Provincially regulated Mortgage Broker course and exam. (In BC, Mortgage Brokers must be licensed by FICOM)  They continue to maintain their good status to keep that license by taking professional development education courses
    • Bank specialists are not licensed and require no formal training.   There are no standards for educational requirements (although most Lenders do provide some in-house training).   
  • Because Mortgage Brokers don’t work for a specific lender, you get impartial advice about a variety of lenders
    • A bank specialist can only offer their own institutions products, good or bad.
    • Specialists don’t have access to other lenders, so they won’t recommend another lender’s product offerings.
  • Mortgage Brokers use their knowledge and experience to negotiate the best possible terms and rates for you from a variety of lenders, based on the best fit for your situation.
    • When you see a bank specialist, the mortgage negotiating is typically left up to you.
    • Will the bank specialist negotiate on your behalf or the banks?
  • For conventional financing, the services of a mortgager broker are generally FREE to you. If there is a cost, you will be advised of those costs up front. Brokers get a finder’s fee from the lender once they place your mortgage.  Therefore, brokers are motivated to get the best terms and rates for their clients.
    • Bank specialists are paid by the bank
    • Some banks offer bonuses if specialist gets their client to pay higher interest rates or sign up for other bank services.
  • Mortgage Broker’s work on a referral basis and are self employed. Most of their business is done through word of mouth referrals, therefore a Mortgage Broker is motivated to ensure their clients are extremely happy and satisfied to keep their business growing.
    • A bank specialist is generally an employee of the bank, generating business through the bank’s existing customers.
    • Most Mortgage Brokers are available for appointments outside banking hours (nights, weekends) at their client’s convenience.
      • Bank specialists are generally only available during regular banking hours.
  • Mortgage Brokers are focused on your mortgage
      • Specialists are trained and rewarded on cross selling.  Some will push you to consolidate all your banking services with them when getting a mortgage (credit cards, insurance, RRSP, lines of credit, etc.)

Coffee Smiling Mar2016Would you ask Tim Hortons who makes the best coffee and expect them to say Starbucks? Not likely…  So why would you ask a Mortgage Specialist who works for a bank, to tell you which Lender has the best mortgage product for your situation?

For additional information check out my BLOG Top 10 Reasons to Use an Independent Mortgage Broker

Mortgages are confusing… Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Broker
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

26 Jun

Don’t Forget the Closing Costs When You Purchase a Home

BC

Posted by: Kelly Hudson

The purchase price you negotiate when buying or selling a home is just one part of the total cost for buying a home. In addition to the purchase price there are several other fees – known as closing costs – all of which you need to factor in to your purchase price.

Closing costs tend to be hidden costs when buying a home. It’s not a set number, but a compilation of various administrative, legal fees and other one-time expenses associated with the purchase of a home that are due on the completion date.

These costs can add up, so you’ll need to factor these costs into your cash-on-hand budget.

Many first-time home buyers under estimate the amount of cash they will need for closing costs. Typically, you’ll want to budget between 1.5% and 4% of the purchase price of a resale home to cover closing costs.

Of course, these are estimates — the actual amount you will need could be higher or lower, depending on factors like where you live, the type of home you’re buying, or if it’s a new construction (+5% GST).

To help you plan the purchase of your property, here’s a snapshot of the extra fees you can expect to pay once you’ve settled on the price of your home.

  • Legal Fees
  • Title Insurance
  • Fire Insurance
  • Adjustments
  • Property Transfer Tax (PTT)
  • GST
  • and more…

Here’s an overview of what you can expect.

Legal Fees:

Legal/Notarial Fees and Disbursements. The lawyer/notary is the person who goes through all the paperwork and makes sure that everything is legitimate and binding. They confirm that all the items that were agreed to by the buyer, seller/builder, and lender are written and worded correctly. Your legal representative should also be able to walk you through each document that you sign so that you understand what you’re agreeing to. Legal fees range from $500 to $2,500. You will also need to reimburse them for their out-of-pocket costs that they incurred while handling the various searches and registrations, including title insurance (see below), property and execution searches, and the registration of the mortgage and deed. These disbursements are repaid to the lawyer on the closing date, as well as incidentals such as couriers, certified cheques, and photocopying, the land transfer tax, the down payment, and any interest adjustments.

Title Insurance:

Title refers to the legal ownership of the property. The deed is the physical legal document that transfers the title from one person(s) to another. Both the title and deed of the home must be registered with a land registrar.

Most lenders require title insurance as a condition of granting you a mortgage. Your lawyer or notary helps you purchase this.

Title insurance protects you from title fraud, identity theft and forgery, municipal work orders, zoning violations and other property defects. It can also protect you against fees and costs that were not caught in the searches your lawyer conducted prior to the sale (Yes this can happen!).

Title insurance premiums range from $150-$500 depending on the value of the property.

Fire/Home Insurance:

Mortgage lenders require that you have fire/home insurance in place by the time you complete the purchase of your home.

Property insurance protects you in case of fire, windstorms or other disasters. It covers your home’s replacement value. The amount required is at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. Home insurance can vary anywhere from $400 per year for condos to $2,000 for large homes.

Adjustments:

An adjustment is a cost to you to pay the seller for the seller prepaying for something related to the house including property taxes, condo fees, heat etc. on your behalf.

Simply put, if you take possession in the middle of a month, the seller has already paid for the whole month and you must pay the seller back for what they’re not using. These adjustments are prorated based on the date you complete your purchase of the home. The most common adjustments are for property taxes, utility bills & condo fees that have been prepaid.

Property transfer tax (PTT) in British Columbia:

Is a tax charged to you by the province. First-time home buyers are exempt from this fee if they are purchasing a property under $500,000. All home buyers are exempt if they are purchasing a new property under $750,000.

GST:

Is a federal value added tax 5% on the purchase price of a new home. If someone has lived in the home, the home isn’t subject to GST.

  • There is a partial GST rebate on new properties under $450,000.

Interest Adjustment Costs:

Most lenders expect the first mortgage payment one month after completing the purchase of a home. If you close mid-month, please note some lenders expect the first payment, or at least the interest accrued during that time, on the 1st day of the next month. When arranging your mortgage, ask how interest is collected to the interest adjustment date.

Other closing costs:

Will your new home need furniture? Carpets? Lighting? Window coverings? Appliances? Do you have the equipment you need to maintain the lawn and gardens? Are you hiring movers or renting a truck? Will you need boxes, bubble wrap and tape for the move?

While these and other out-of-pocket costs aren’t part of the real estate transaction, you still need to budget for them. Plan your expenses as much as possible. If necessary, decide what you can put off buying until later, after you move in and get settled.

Congratulations!! You’re all caught up on your closing day costs. Now its time to get your keys and enjoy your new home.

Mortgages are confusing… Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com 
www.KellyHudsonMortgages.com

1 May

BC’s Property Transfer Tax & First-Time Home Buyers

BC

Posted by: Kelly Hudson

What is Property Transfer Tax?

Property Transfer Tax (PPT) is a tax payable to the BC Provincial Government by purchasers of real estate in BC.  The tax applies to all types of real estate, whether residential, commercial or industrial.

  • Property Transfer Tax arrived on March 7, 1987, with Social Credit premier Bill Vander Zalm government’s first budget and it has survived every change of government since then.

How is PPT calculated?

In BC you are charged property transfer tax when you make changes to a property’s title

The amount of tax you pay is based on the fair market value of the land and improvements (e.g. buildings) on the date of registration unless you purchase a pre-sold strata unit.

The property transfer tax rate is:

  • 1% on the first $200,000,
  • 2% on the portion greater than $200,000 and up to and including $2,000,000
  • 3% on the portion greater than $2,000,000, and
  • if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018).

What is Fair Market Value? 

Fair market value is the price that would be paid by a willing purchaser to a willing seller for a property in the open market on the date of registration.  This is usually the actual purchase price paid for the property.

What is the “Additional Property Transfer Tax”, or what is sometimes called the “Foreign Buyers Tax”?

In addition to the property transfer tax, if you are a foreign national, foreign corporation or taxable trustee, you must pay the additional property transfer tax on your proportionate share of a residential property transfer if the property is within specified areas of B.C.

Your proportionate share is the percentage of interest that you are registering on title with the Land Title Office.   If the property transfer is registered on or after February 21, 2018 and is within the following areas, the tax amount is 20% of the fair market value of your proportionate share:

For additional information check out “Foreign Buyers Tax”

How does a buyer qualify for the First Time Home Buyers Exemption?

You may qualify to reduce the amount of tax you need to pay if:

First Time Home Buyers’ Program

The First Time Home Buyers’ Program reduces or eliminates the amount of property transfer tax you pay when you purchase your first home.  If you qualify for the program, you may be eligible for either a full or partial exemption from the tax.

If one or more of the purchasers don’t qualify, only the percentage of interest that the first-time home buyer(s) have in the property is eligible.

  • e. if you qualify and purchase a property with a fair market value of $400,000 with a person who doesn’t qualify you would still qualify. If you owned a 60% interest in the property, 60% of the tax amount would be eligible for the exemption.

Do I Qualify?

To qualify for a full exemption, at the time the property is registered you must:

  • be a Canadian citizen or permanent resident
  • have lived in BC for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a BC resident in the last 6 years
  • have never owned an interest in a principal residence anywhere in the world at any time
  • have never received a first-time home buyers’ exemption or refund

Purchaser must move into the property within ninety-two days after registration of the purchase of the property and reside in the property for at least one year; and the property must:

  • be located in BC
  • only be used as your principal residence
  • have a fair market value of $500,000 or less
  • be 0.5 hectares (1.24 acres) or smaller

You may qualify for a partial exemption from the tax if the property:

To estimate Your Property Transfer Taxes Click here

Newly Built Home Exemption

To qualify for the Newly Built Home Exemption and avoid paying the Property Transfer Tax, the following criteria must be met:

  • The property must be newly built, as defined in the legislation
  • The Buyer must be an individual (may not be in a company name, trust, etc.)
  • The Buyer must be a Canadian citizen or permanent resident
  • The property must be used as the principal residence of the Buyer, who must move into the property within ninety-two days after registration of the purchase of the property and reside in the property for at least one year;
  • To obtain a full exemption, the purchase price must not exceed $750,000. A partial exemption is available for homes between $750,000 and $800,000
  • The property must be 1.24 acres or smaller.

If you qualify for the exemption, you may be eligible for either a full or partial exemption from the tax.

If you paid property transfer tax when you purchased vacant land and you now have a newly built home on the land, you may be eligible for a refund of the property transfer tax you paid.

Do I Qualify?

To qualify, the property (land and improvement) transfer must be registered at the Land Title Office after February 16, 2016 and you must be:

  • an individual
  • Canadian citizen or permanent resident (you will be asked to provide your Social Insurance Number (SIN) or proof of permanent residency and your birthdate)

and the property must:

  • be located in B.C.
  • only be used as your principal residence
  • have a fair market value of $750,000 or less
  • be 0.5 hectares (1.24 acres) or smaller

You may qualify for a partial exemption, if the property:

  • has a fair market value greater than $750,000 and less than $800,000
  • is larger than 0.5 hectares
  • has another building on the property other than the principal residence

To estimate the amount of your exemption Click Here 

Are there other exemptions?

Yes, such as a transfer of a principal residence between family members. For details on this and other exemptions, go to Property Transfer Tax Exemptions

Please note:  Property Transfer Tax should not be confused with Property Tax. Property Tax is the tax paid on an annual basis to the local City/Municipality where the property resides.

The Property Transfer Tax is a one-time tax paid to the BC Government by purchasers of real estate.

The Property Transfer Tax Act frequently changes along with the exemptions for payment of this Tax – for current information Click Here

Mortgages are confusing… Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

11 Apr

History of Mortgage Changes up to April 2018

BC

Posted by: Kelly Hudson

Every time you turn around, seems like there is another change to qualifying for a mortgage. Let’s walk through some of the mortgage changes over the years…

History of mortgages in BC

Before 2007-2008

During this time, lending and mortgages policies were much more lenient! 100% financing was available, 40-year amortizations, cash back mortgages, 95% refinancing, 5% down payment required for rental properties.  You could qualify for Fixed and Variable term mortgages at the discounted contract rate. There was NO limit for your Gross Debt Servicing (GDS) if your credit was strong enough. Lenders had relaxed lending guidelines when debt servicing secured and unsecured lines of credits and heating costs for non-subject and subject properties.

The financial crisis of 2007–2008, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It began in 2007 with a crisis in the subprime mortgage market in the United States and developed into a full-blown international banking crisis.

Due to the financial crisis, the Canadian government got involved, therefore many new mortgage rules have been implemented over the last 10 years.

July 2008
We saw the elimination of 100% financing, the decrease of amortizations from 40 to 35 years.  The introduction of minimum required credit scores. Total Debt Servicing (TDS) could be maxed out to 45%.

April 2010
Variable Rate Mortgages, along with 1, 2, 3 & 4 year Fixed Term Mortgages now need to be qualified at the 5-year Bank of Canada’s posted rate. If you had a 5 year Fixed mortgage, you could qualify at the discounted contract rate.

Investments properties, which previously needed only 5% down payment, now require a minimum 20% down payment. Introduction of new guidelines which factored in rental income, property taxes and heat for affordability.

March 2011
The 35-year amortization was dropped to 30 years for conventional mortgages. Refinancing dropped to 85% from 90% and the elimination of mortgage insurance on secured lines of credit.

July 2012
30-year amortizations dropped again to 25 years for High Ratio Mortgages (less than 20% down payment). Refinancing also dropped down from 85% to the current 80%. Tougher guidelines within stated income mortgage products making financing for the Business for Self more challenging.  The disappearance of true equity lending. The largest changes were:
• Ban mortgage insurance on any million-dollar homes
– 20% minimum requirement for down payment for homes over $1m
• Elimination of cash back mortgages
• Federal guidelines introduce a minimum 5% down payment on owner occupied homes

February 2014
Increase in mortgage default insurance premiums. *
  • By law, anyone putting down less than 20% of the purchase price of a home in Canada must pay mortgage insurance, even though the homeowners themselves don’t benefit from that coverage. Rather, it’s a fee, borrowers pay so, if they default on loans, their lenders aren’t on the hook, instead, an insurance payout would cover any defaulted loans.

February 2016
Minimum down payment rules changed to:
• Up to $500,000 – 5%
• Up to $1 million – 5% for the first $500,000 and 10% up to $999,999
• $1 million plus homes require 20% down payment (no mortgage insurance available)
• Exemption for BC’s Property Transfer Tax on NEW BUILDS regardless if one is a 1st time home buyer with a purchase price of $750,000 or less.
– BC Property Transfer Tax (PPT) arrived March 7, 1987, with Social Credit premier Bill Vander Zalm government’s first budget and it has survived every change of government since then.

July 2016
The introduction of the foreign buyer tax stating that an ADDITIONAL 15% Property Transfer Tax (only to Metro Vancouver) is applied for all non-residents or corporations that are not incorporated in Canada purchasing property.

October 17, 2016: Mortgage Stress testing
Mortgages with less than 20% down payment (requiring Mortgage Default Insurance) now have to qualify at Bank of Canada 5 year posted rate (currently 5.14%).

November 30, 2016: Monoline Lenders
Portfolio Insured mortgages (Monoline lenders) greater than 20% have new conditions with regulations requiring qualification at the Bank of Canada 5 year posted rate, maximum amortization of 25 years, max purchase price of $1 million and must be owner-occupied.

March 17, 2017
Increase in mortgage default insurance premiums.*

2018 April 2018What about 2018??

January 2018: The Office of the Superintendent of Financial Institutions (OSFI) announces Stress Testing for all mortgages, no more bundling and other restrictions
• If your mortgage is uninsured (greater than 20% down payment) you will now need to qualify at the greater of:
– the five-year benchmark rate published by the Bank of Canada (currently 5.14%)
– OR the contractual mortgage rate +2%
• Lenders will be required to enhance their Loan to Value (LTV) limits so that they will be responsive to risk. This means LTV’s will need to change as the housing market and economic environment change.
• Restrictions will be placed on lending arrangements that are designed to circumvent LTV limits. This means bundled mortgages will no longer be permitted.

*A bundled mortgage is when you have a primary mortgage and pair it with a second loan from an alternative lender. It is typically done when the borrower is unable to have the required down payment to meet a specific LTV.

February 2018 – Premier John Horgan’s NDP government took steps to dampen speculation with BC real estate by imposing a new speculation tax and increasing the foreign buyers tax to 20%.
• Both measures are aimed at slowing the flow of global capital (that critics say is driving up BC home prices) and extends beyond Metro Vancouver.
• Raising the foreign buyer tax from 15% to 20%. The higher tax now covers Victoria and Nanaimo land districts on Vancouver Island, the Fraser Valley, Kelowna and West Kelowna.
• The speculation tax, is intended to get tax from absentee investor homeowners who often declare little or no income tax in BC but are believed to have substantial global incomes. The tax will start at 0.5% of a home’s assessed value for the 2018 tax year and increase to 2% in 2019.

BOTTOM LINE: How can you keep up with all the mortgage changes?

The home buying industry has always been one of change, which has shifted and altered based on the economy and what is currently going on in Canada and BC.

Question marks Mar16To understand mortgages, you need to work with a mortgage broker!

Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com