Mortgage Articles

Canadian homebuyers face a significant challenge when it comes to accumulating the hefty down payments required to purchase homes in our increasingly expensive housing markets. According to the National Bank of Canada's housing affordability index from February 2024, the down payments needed for the median homes in cities like Toronto and Vancouver surpass $200,000. In response to this growing concern, the federal government introduced the First Home Savings Account (FHSA) on April 1, 2023, aiming to help improve the financial down payment burden on prospective homebuyers. However, while the FHSA offers promising opportunities, it's crucial for would-be buyers to understand its workings and potential risks. Here are five essential things prospective homebuyers should know before opening their own FHSA: 1. How does the FHSA work? The FHSA allows account owners to put as much as $8,000 in savings away annually, and up to $40,000 over five years. Contribution room starts growing the first year the FHSA is opened. If you don’t have the whole $8000 now – consider starting your FHSA account this year with $100. Then if/when the rest of the cash comes available you can top up the account to a maximum of $8000/year (maximum contribution $40K) That money is tax-free on the way in and on the way out, meaning any contributions can count as deductions on income tax and are not taxed when withdrawn for a down payment on a qualifying home. The FHSA is “the best of both worlds,” with funds behaving like a registered retirement savings plan (RRSP) on the way in and a tax-free savings account (TFSA) on the way out. Moreover, funds in the FHSA can grow tax-free for up to 15 years, after which they must be withdrawn or transferred to an RRSP. It's important to note that withdrawing funds for purposes other than a home purchase results in the amount being added to your taxable income for that year. 2. You don’t have to be a first-time buyer Contrary to popular belief, the FHSA is not exclusively reserved for first-time homebuyers. Eligibility extends to Canadian residents aged 18 (or 19 in some provinces) to under 71. You also must not have lived in a home owned by you OR your spouse in the year that you open the account or any of the preceding four years. This means Canadians who owned their home but sold more than five years ago, or currently own the property but don’t live there as their principal residence, are qualified to open an FHSA. That opens the account up to anyone who owns and rents out a property but also rents themselves. 3. What do you do with the money once it’s in the FHSA? Funds within the FHSA can be held in various investment vehicles, including high-interest savings accounts or securities. The choice of investments depends on individual risk tolerance and time horizon. While long-term savers might opt for stock market investments to capitalize on potential gains, those nearing their purchasing goals might prefer more conservative options like guaranteed investment certificates (GICs) or fixed-rate savings accounts. 4. Multiple accounts can work together Individuals can open multiple FHSAs across different financial institutions without exceeding annual or lifetime contribution limits. Although joint accounts aren't permitted, funds from multiple FHSAs can be pooled towards the purchase of a single home. Additionally, the FHSA can be used alongside other savings vehicles such as TFSAs and the Home Buyers' Plan (HBP), further enhancing purchasing power. Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000/each from their RRSPs to assist with the purchase of an owner-occupied home . The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home. These funds are withdrawn, with the condition that the funds are paid back into the account over the course of 15 years (or you are taxed on the portion not being repaid into your RRSP). Please note that RRSP funds MUST be in account for 90 days BEFORE removing for down payment. A down payment is not the only thing buyers need to prepare to be financially ready for a home. Canadians should consider their “credit-worthiness,” as well, and make sure they’re paying down debt so that when they’re ready to buy and cash out their FHSA, that they will qualify for the mortgage amount they need. BLOG 8 Credit Rules You Need to Know, Before You Buy a Home BLOG 5 C’s of Credit to get a Mortgage 5. Don’t forget about the tax implications Opening an FHSA entails tax obligations, including reporting contributions and transactions in the annual tax return. A T4FHSA slip provided by the lender details these transactions, with individuals required to fill out Schedule 15 for deductible contributions. Notably, contributions to the FHSA are tax-deductible, but transfers to an RRSP are not. Individuals have the flexibility to carry forward deductions to future tax years if desired.

Securing a mortgage significantly depends on your credit score and debt load. Understanding how different types of debt affect mortgage affordability is crucial. Debt falls into two categories: secured and unsecured. Secured debt, backed by collateral like a house or car, provides lenders security in case of default. Unsecured debt, such as credit cards, lines of credit, and student loans, poses higher risk for lenders and typically carries higher interest rates. Here's how different types of debt influence your credit score and mortgage approval: Credit Cards are unsecured debt, offering revolving credit lines with interest rates based on creditworthiness. Responsible credit card usage can positively affect credit scores, but defaults or late payments can lead to higher interest rates and decreased creditworthiness. Line of Credit : Like credit cards, lines of credit are unsecured and provide borrowers access to a predetermined credit limit. Responsible use can improve credit scores, while defaults can have negative credit repercussions. Student Loans: Despite being unsecured, they can enhance credit scores if paid on time. They contribute to the debt-to-income ratio. Auto Loans: Auto loans are secured debt, with the vehicle serving as collateral. They can diversify debt portfolios and improve credit scores. Existing Mortgage Loans: Secured by the property, timely payments enhance credit scores. Missed mortgage payments raise red flags for new lenders. Maintaining a balanced mix of debt types strengthens credit scores and mortgage eligibility. However, over-borrowing can be harmful.

When it comes to managing your mortgage, every payment matters. The frequency of your mortgage payments can significantly impact your financial strategy and overall budgeting. While monthly payments are the norm, alternatives like bi-weekly, semi-monthly, and accelerated options offer unique advantages and considerations. Let's explore how each frequency impacts your bottom line and helps you make informed decisions about your mortgage. Understanding Mortgage Payment Frequencies Mortgage payments are the backbone of homeownership, representing a blend of interest and principal. Interest accrues on the outstanding balance (principal), and once it's paid, the remainder of your payment goes towards reducing the principal balance (amount you borrowed). Here's a breakdown of the most common payment frequencies: 1. Monthly Payments (12/year): The most prevalent option, monthly payments simplify budgeting with 12 payments per year. They align well with most income schedules, offering convenience and consistency. 2. Semi-Monthly Payments (24/year): Occurring twice a month (typically 1st & 15th), semi-monthly payments result in 24 payments annually, equivalent to 12 full payments. While they offer structured budgeting, they lack the accelerated payoff benefits of other options. 3. Accelerated Bi-Weekly Payments (26/year): Accelerated bi-weekly payments involve paying every two weeks, totalling 26 payments annually (equivalent to 13 months' worth in a 12-month period). This extra payment each year accelerates mortgage payoff, reducing the principal balance faster and saving on interest over time.

This post is revised from Jan. 7, 2023 What is BC Assessment? It’s January 2024 and BC homeowners are receiving their property assessments. Residential asset prices in British Columbia stabilized over the past year, according to the province’s latest housing assessment figures. Metro Vancouver exhibited few price fluctuations. BC Assessment said that its latest evaluation, which reflected market conditions as of July 1, 2023, found that single-family homes in Vancouver saw a 4% increase in assessed values, exceeding $2.2 million. Conversely, strata properties exhibited stability, posting minimal change to remain at $807,000. BC Assessment is a provincial Crown corporation that values all real estate property in British Columbia. Every year, BC Assessment sends property owners a Property Assessment Notice telling them the fair market value of their property as of July 1 the prior year . To see the most recent assessment for a property, click on BC Assessment and type in the property address. The real estate market is the single biggest influence on market values. Market forces vary from year to year and from property to property. The market value on an assessment notice may differ from that shown on a bank mortgage appraisal or a real estate appraisal because BC Assessment’s appraisal reflects the value as of July 1 of 2023 , while a private appraisal can be done at any time. The assessed values are based on limited information and are a result of algorithms and mass appraisal techniques which have their limitations. Use your BC Assessment as a starting point for the value your home purchase… Do not rely on BC assessment for the exact value of the property you’re considering purchasing. Markets in BC change quickly both increasing and decreasing in value depending on the area and the economy.

Most Canadians are conditioned to think that the lowest interest rate means the best mortgage product. Although sometimes that is true, a mortgage is much more than just an interest rate. You can save yourself a lot of money if you pay attention to the fine print for the total cost of your mortgage. To pick the best mortgage, you need to understand how mortgages work and what your options are. This comes with Mortgage Intelligence (my specialty)! Once you’ve selected the type of mortgage, then you’ll need to work with your Mortgage Broker (me!) to find the best fit for you and your situation. Are you planning to move in the next 5 years (Upsize? Downsize?) Will your family be growing/shrinking? Will your employment change and if it does will you need to relocate? Would $1000’s in penalties impact you if you need to break your mortgage? What types of debts do you have? Credit cards? Car loan? Student loan? Line of Credit? Why do all this work? Because it will have a direct impact on your bottom line. A mortgage is made up of two parts—the principal and interest—you need to pay attention to how and when these parts get paid down. Ideally, you want to minimize your interest payments and maximize the principal payments. To pick the best formula for your situation, you’ll first need to understand some of the factors that impact how much interest you’ll pay for your mortgage loan. Here are 6 mortgage terms to help you make the best decision for your situation. Amortization Amortization is a fancy word that means the “life of your mortgage” OR how long it takes to pay off your mortgage if you paid your mortgage for “X” years. The amount of your mortgage loan repayment is calculated based on the length of time you agree to paying off that debt. In Canada, the standard amortization period is 25 years. If you have a 20% down payment (or higher) you could amortize over 30-years BLOG 5 GREAT Reasons To Provide a 20% Down Payment when Buying a Home Picking the best mortgage is not just about qualifying for the mortgage. The amortization period is integral in the best mortgage decision because it will decide how much or how little interest you will pay during the life of the mortgage loan. The longer the amortization period (25 years vs 30 years) the more interest you will pay. Therefore, a shorter amortization period will lower your overall cost of borrowing BUT you must be able to afford/qualify for the higher payments. Once you’ve decided on your amortization, you will need to decide how frequently you would like to make your mortgage payments. Every mortgage payment (consisting of both interest and principal) will help reduce your principal (the amount of money you borrowed) and eventually reduces the overall interest you pay on this loan. Monthly, bi-monthly, accelerated bi-weekly or weekly mortgage payments. BLOG Mortgage Payment Frequency - Accelerated Bi-Weekly vs Bi-Weekly Payments Term In the 1980’s mortgage interest rates were as high as 22%. Interest rates can change over time therefore, lenders don’t want to negotiate a 25-year loan at 5% interest if the interest rates go up to 10% in 5 years. To avoid the risk, lenders break your mortgage amortization into smaller terms. The term is shorter than the amortization period and locks you into your pre-negotiated rates during that time. The length of term you choose (most Canadians choose 5 years) will depend partly on if you think interest rates will rise or fall. Typical terms are: 1, 2, 3, 4, 5, 7 & 10. About 3-6 months before your current term matures, your current lender usually sends you a renewal notice with options on rates for the various terms they offer. Once your mortgage matures - you can stay with your current lender or move to a new lender. Once you get your renewal notice, you need to contact your mortgage broker (me!) to ensure you’re choosing the best option for your situation. BLOG Mortgage Renewal – 5 Things You Need to Know Closed Mortgage A closed mortgage usually offers the lowest interest rates. Closed mortgages cannot be paid off before the end of its term without triggering a penalty. Some lenders allow for a partial prepayment of a closed mortgage by increasing the mortgage payment or a lump sum prepayment. If you try and “break your mortgage” or if any prepayments are made above the stipulated allowance the lender allows, a penalty will be charged. BLOG Mortgage Penalties – Ouch… How Much?? Open Mortgage An open mortgage is a more flexible mortgage that allows you to pay off your mortgage in part or in full before the end of its term without penalty. Because of the flexibility the interest rates are higher. The interest rates for an open mortgage are typically 3-4% higher than a closed rate mortgage. i.e., a home buyer may pay 7.99% for a 5-year open mortgage vs. 4.99% for a five-year closed mortgage. If you plan to sell your home soon or expect a large sum of money, an open mortgage can be a great option. Most lenders will allow you to convert from an open to a closed mortgage at any time (and switch you to lower rates).

Securing a mortgage is a significant step in the home-buying process, and as you approach the finish line, it's crucial to exercise caution. Certain actions can potentially jeopardize your mortgage approval or affect the terms of your loan. We have worked together to secure financing for your mortgage. You are getting a great rate, favourable terms that meet your mortgage needs, the lender is satisfied with all the supporting documents. We are broker complete, and the only thing left to do is wait for the day the lawyers advance the funds for your mortgage. In my blog post, we'll explore the 8.5 things you should avoid doing before your mortgage closes to ensure a smooth and successful home purchase.

What is Porting a Mortgage? Porting your mortgage means taking your current existing mortgage (along with its current rates & terms) from your current property & transferring it to another property. People want to port their mortgage when they buy a new home and want to preserve their current interest rate OR avoid paying a penalty for breaking their current mortgage early. BLOG : Mortgage Penalties – Ouch… How Much?? What many people don’t realize is that if you decide to port your mortgage, it is like starting from square 1 on your mortgage. It requires a complete re-qualification for everyone on the mortgage, meaning a whole new application, all new employment documentation, a fresh credit check PLUS the new property needs to qualify (appraisal). Don’t worry if the mortgage you’ll need for the new property will be larger than your current mortgage – that’s very common when porting a mortgage. Most lenders will offer you what’s called a blend and extend. This is essentially a weighted average of the existing mortgage and interest rate, and the new money required at a current mortgage rate. Your mortgage is portable, right? Most lenders claim their mortgages are portable, however porting is so complex these days that it has become one of the more over-rated mortgage features. Let me explain: You don’t have enough income to qualify for the mortgage. If you don’t have enough provable income (i.e., your income has fallen since you last got approved), you could have a problem. If you become self-employed after your mortgage funds, but don’t have the required two years of tax returns showing sufficient earnings. BLOG : Self Employed?? Here’s What You Need to Know About Mortgages Your debt ratios are too high ( you’re spending too much of your income on mortgage & debts). If your monthly debt load and housing obligations have grown too large (more of your gross monthly income is needed to finance your home & debts), you’ll be declined. In January 2018 the federal government implemented a Stress Test. Whichever is the highest is how you must qualify for a mortgage. Qualify at the Chartered Bank Benchmark Rate (Government Rate) which fluctuates (currently 5.25%). OR the contract rate your lender gives you PLUS 2% i.e. 5.00% + 2% = 7.00% Since 7.00% is the highest – that would be the stress tested rate. If you must qualify for a mortgage at a rate 2% higher than the lender is giving you, your buying power decreases by about 20%. The new home purchase date doesn’t match up with the selling of your current home. If the purchase of your new home closes after the lender’s porting deadline. Typically, Lenders allow 30-120 days to port your mortgage from Property A to Property B (a few lenders allow up to 365 days). It can be difficult to get the closing dates of your current and new home to fall within porting deadline. Your new property doesn’t qualify. Lender may LOVE you, but they need to LOVE the new property as well. Many lenders have changed criteria on investment, leased land, age-restricted, remediated grow-op properties, well water, building flaws, co-ops, etc. Your credit score has fallen. The lender will look at your current credit score. If you no longer meet the lender’s minimum credit score (typically 680+), porting your mortgage may not be an option. OR if the lender allows you to port, you will pay a higher interest rate. BLOG: 8 Credit Rules You Need to Know, Before You Buy a Home You need more money. If you are upgrading your home, you will probably need a bigger mortgage. Some lenders will only port the exact same dollar amount. That means you may have to come up with the difference if you buy a more expensive home OR break your current mortgage. Please note that for lenders that allow a bigger mortgage, applying for more money while porting (a.k.a., a “port and increase”) could reduce your negotiating power because the existing lender knows you don’t want to pay a penalty to leave. Your current lender does not have to be competitive since you are “stuck with them” since you don’t want to pay the penalty for breaking your mortgage. You’ve got a variable-rate mortgage. Your lender may not port its variable-rate mortgages (many don’t), you may have to break it and pay a penalty. Some lenders will require you to convert your variable mortgage to a fixed rate before porting… typically you wouldn’t get the best rate. If your mortgage has a home equity line of credit (HELOC) component, note that some lenders refuse to port HELOCs You can’t get bridge financing. If your take possession of your new property before the sale completes on your old property, you need to “bridge” the down payment until you get the cash from your sale. The problem is, not all lenders offer bridge financing. If yours doesn’t, and you need it, and you can’t get it elsewhere, you may have to break the mortgage. BLOG: Bridge Financing – How Does It Work?? The property is outside the lending area. Some lenders have very restrictive lending areas. i.e., If you’re with a credit union, you generally can’t port out of the province. Many other smaller lenders have restrictions on rural properties, especially if the mortgage is not mortgage default insured . You want to keep your current maturity date. Some lenders require you to get a brand new 5-year term when you “port” your mortgage to a new property. A 5-year term “could” lock you in longer than you’d prefer at a worse rate than you like. Forewarned is forearmed. Understanding the pros & cons of mortgage portability can save you a lot of stress. The bottom line: Mortgages are portable (in theory). However in practice, over 60% of people can NOT port their mortgage. Any questions? Give me a call and let’s discuss a mortgage that works for you (not the bank)! Kelly Hudson Mortgage Expert Mortgage Architects – A Better Way Mobile 604-312-5009 Kelly@KellyHudsonMortgages.com www.KellyHudsonMortgages.com

Buying a home is an exciting and significant step in one's life, but for most people, unless they are independently wealthy, it often involves securing a mortgage to turn their home buying dream into a reality. Not everyone who applies for a mortgage gets approved. In my BLOG, we'll explore ten common factors that can affect mortgage eligibility. Low or No Credit Score: One of the most critical factors in mortgage approval is your credit score. Lenders use this score to assess your creditworthiness. A low credit score may result from missed payments, high credit card balances, or other negative credit history, making it challenging to secure a mortgage. Think of it from the lenders point of view… they are going to lend you Hundred’s of Thousands of dollars and the only indication that you will pay them back as promised, is by thoroughly reviewing your credit bureau. BLOG 8 Credit Rules You Need to Know, Before You Buy a Home BLOG 5 C’s of Credit to get a Mortgage Insufficient Income: Lenders need to ensure that you have a provable income to make mortgage payments. If your income is insufficient to cover the monthly payments or your debt-to-income ratio is too high, it can lead to rejection. Employed or Self Employed: Lenders prefer borrowers with a provable, stable employment history. Frequent job changes, unemployment periods or recently starting your own business, will raise concerns from the lender about your ability to repay the mortgage. BLOG Self Employed?? Here’s What You Need to Know About Mortgages High Debt Levels: Excessive debt, including credit card debt, student loans, or car loans, can have a negative impact on your mortgage approval. Lenders evaluate your debt-to-income ratio, and a high ratio may lead to your mortgage being denied. Insufficient Down Payment: Lenders require a down payment, typically ranging from 5% to 20% (or more) of the home's purchase price. If you can't afford the required down payment, it can be a significant barrier to mortgage approval. BLOG 5 GREAT Reasons To Provide a 20% Down Payment when Buying a Home BLOG Why You Need to Prove your Down Payment when Buying a Home BLOG How to Verify Your Down Payment When Buying a Home Inadequate Documentation: Failure to provide accurate or complete documentation can lead to delays and jeopardize your mortgage approval. Poor Mortgage Payment History: If you've previously defaulted on a mortgage or faced foreclosure, declared bankruptcy or consumer proposal, it will impact your chances of getting approved for a new mortgage. Lenders are wary of borrowers with a history of non-payment. Too Much New Credit: Opening multiple new credit accounts shortly before applying for a mortgage can raise red flags for lenders, as it may indicate financial instability or a higher risk of default. Property Appraisal Issues: Even if you meet the financial criteria, the property itself must pass the lender's approval including an appraisal. If the appraisal value is lower than the purchase price, it can create challenges in securing a mortgage. BLOG What Happens When Your Home Appraisal Comes in Low? BLOG BC Property Assessment vs Home Appraisal 2023 Co-Signer Issues: Having a co-signer on your mortgage can be helpful if you have credit or income challenges. However, if the co-signer has their own financial obligations or credit challenges, it can affect your mortgage approval. BLOG Would a Co-Signer Enable You to Qualify for a Mortgage? In conclusion, obtaining a mortgage is a significant milestone in the journey to homeownership. Hopefully, this list helps answer the common question borrowers ask when they are unable to qualify for a mortgage: 'Why?’ To increase your chances of mortgage approval, focus on maintaining a healthy credit score, managing your debt wisely, and working with your trusted mortgage broker will help you navigate the process and address potential obstacles.