27 Oct

WHY BANKS WANT YOU TO SIGN THE RENEWAL AGREEMENT THAT THEY MAIL OUT TO YOU

General

Posted by: Angela Vidakovic

 

Why banks want you to sign the renewal agreement that they mail out to youMost banks boast a higher than 90% renewal rate on their mortgages (some even higher than 95%). Since it costs them a lot more money to acquire a new client vs. keeping an existing one, banks love the savings of a simple renewal. So you would think that they would offer you the best rate up front on your renewal as it’ll save them money in the long run? Well…not necessarily.

With renewal rates being as high as they are, there is not much incentive for banks to give their clients the best rates up front. They know that most people will stay as they know it’s easier to just sign a form as opposed to applying for a mortgage at another bank. Hence the dreaded renewal letter that gets mailed out automatically prior to your renewal date.

The banks would love nothing more than for you to just pick the term, sign the document, and send it back to them. It costs them relatively little to process it and they don’t have to follow up with you after that (other than sending you a new copy of the agreement).

Since the renewal documents are printed automatically (and yes they may include a “preferred rate” which makes it even more tempting to sign) they don’t factor in any rate specials that may occur after they’re printed.

Recently a client’s mortgage was coming up for renewal and they received the automatic renewal letter. Just calling the 1-800 number saved them an extra .10%, which on a $500,000 mortgage was an extra $500 per year in interest. Not bad for a 5 min phone call.

There are also some important questions to answer:

-are you planning on selling your home anytime over the next 5 years?

-do you need to access any equity from your home for renovations, children’s education, etc.

-what are your long term goals with the property?

These are important questions to ask as they help us suggest the right product for you.

So it’s important to treat your renewal as if you’re obtaining a new mortgage and spend some time researching your options. When I worked at the bank I was always shocked at the number of people that just signed the form and sent it back.

That’s why (in addition to the financial institution where your mortgage is now) you need to contact your Dominion Lending Centres Mortgage Broker and have them give you an unbiased view of which mortgage product is right for you, as they have access to hundreds of different financial institutions.

 

written by:JOE CUTURA

25 Oct

PROS AND CONS OF COLLATERAL MORTGAGES

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Posted by: Angela Vidakovic

 

Pros and Cons of Collateral MortgagesDuring the past couple of years the term “collateral mortgage” has gained a bit of a negative reputation, especially since TV shows like CBC’s Marketplace have taken notice. Marketplace felt it was worth doing a segment about collateral mortgages because the lenders offering this product were not disclosing the downside of this type of mortgage.

Collateral mortgages are designed to allow more flexibility in repayment terms and products secured by a residential property. Under the cap, or global limit, a borrower can have a regular mortgage, line of credit, a credit card and multiples of each of these products. When used for this purpose, collateral mortgages are excellent products that enable homeowners to attain cheaper interest, access higher limits and take advantage of splitting mortgages.

Collateral mortgages have been making news lately not because of these positives, however, but due to the negative ways lenders have been using them. When a regular conventional five-year mortgage (or any other term) comes due, or is up for renewal, the borrower can “switch” their mortgage to another lender at no cost. This type of mortgage is registered against the title of the property with the amortization outlined, so another lender simply pays out the other mortgage and continues on with the same amortization and balance as the previous lender had in place.

Under a collateral mortgage however, when the mortgage comes up for renewal, it would actually have to be discharged before another lender could take over the mortgage. This means a lawyer must discharge one mortgage and register a new one, which can result in fees ranging from $500 to $1,000. Not only would it be subject to legal fees, but all secured debt would have to be paid out with the mortgage, including secured credit cards and lines of credit.

Technically, this is considered a refinance and, according to the new federal guidelines, refinances are limited to 80 per cent of the property’s value. So, if the total amount being borrowed is greater than 80 per cent of the property’s value, it may be impossible to switch to another lender until either the debt is paid down or the home value increases. Some lenders have been using this as a retention tool, meaning that they place all of their clients in collateral mortgages knowing that, at the end of their term, it will cost them a significant sum to switch their mortgage to another lender – if it’s even possible to switch given the loan-to-value restrictions. This is why collateral mortgages have gained a bad reputation. Clients weren’t being notified that they couldn’t simply switch their mortgage to a new lender upon renewal.

In order to attain a full objective understanding of whether this type of mortgage is right for your client, be sure to consult with Dominion Lending Centres.  We have access to both collateral and standard mortgages.

 

Written by: Brian Mill

24 Oct

DETERMINING YOUR CREDIT SCORE

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Posted by: Angela Vidakovic

 

Determining your Credit ScorePeople are always confused when it comes to their credit score. What is it? What does it include? How is it calculated? These are all great questions that I will answer for you!

Having a great credit score can save you thousands of dollars, if you know how to manage it. There are two main agencies in Canada that report credit scores: Equifax and TransUnion. Both of these agencies collect information on a daily basis from millions of people through consumer credit agencies including phone companies, mortgage lenders, banks, credit card companies, and independent lenders.

Both of these companies analyze all the data they receive and use it to determine each individual’s credit score. To get a well-rounded credit score, it is most beneficial to have two active trade lines in addition to a mortgage and cell phone plan. The score you receive is based on the following percentages:

  • 35% Payment History

This portion looks at your payment deadlines and if you pay on time every month. The score from this section remains positive as long as you maintain set payments on fixed loans and always make at least the minimum payment on credit cards. This information is kept on file for 7 years from the date of last activity.

  • 30% Utilization

This portion looks at the amount you use on your available lines of credit and credit cards. Ideally you do not surpass the 50% point on any of them and do not need to apply for high credit limits, both being red flags for financial trouble.

  • 15% Length of Credit History

For all financial lenders, a clear history for at least two years is the most favorable situation to show your security. This proves to the lender that you are a low risk applicant.

  • 10% Credit Mix

The credit mix looks at your current loans and credit cards you use. Ideally, having at least one credit card with a $2500 limit and a fixed loan (i.e. house or vehicle) allows the lender to see your level of responsibility on different credit sources to base your score on.

  • 10% Number of Inquires

This can be an area of concern if you frequently inquire about credit opportunities.  If you apply for multiple credit cards, an overdraft on a bank account, and/or a line of credit it can be a red flag that you are experiencing difficulties. If you are just looking for a new method of credit do not worry as your score will only take a minor, temporary hit. If, however, you are constantly inquiring about credit options then your credit score will take a dive.

To learn about the status of your credit score you can write to either Equifax or TransUnion for a free copy at any time. Writing to them will take a few weeks, so if you are strapped for time you can check out a website that will charge you a fee to see your credit report immediately. If you have any questions about credit scores contact us at Dominion Lending Centres and we can guide you through it!

 

written by: ALIM CHARANIA

6 Oct

NOT ALL DOOM AND GLOOM – NEW CANADIAN MORTGAGE RULES EFFECTIVE OCTOBER 17, 2016

General

Posted by: Angela Vidakovic

 

New Canadian Mortgage Rules Effective October 17, 2016The Minister of Finance announced on Monday new Canadian mortgage rules effective October 17,2016. The new rules will impact high ratio buyers – those with less than 20% down payment. Other rule changes are expected to follow so stay tuned for details as they unfold. The important thing to remember is that this is not the end of the world! Rather, it is the time when you really need the voice of reason from an experienced Dominion Lending Centres mortgage professional.

Currently a home buyer with less than 20% (high ratio) requires mortgage insurance through CMHC or one of the private insurers. The financing rules for this purchase differ from those buying a home with 20% or more down payment. However, both types of buyers have one rule in common – to access short term fixed rates (1-4 years) or a variable rate mortgage they must qualify at the benchmark rate (currently 4.64%). They don’t pay that rate, but it is a metric used to qualify for access to the variable or short term rate products.

Effective October 17th all high ratio buyers will have to qualify at the benchmark rate for all terms.

For example a home buyer currently qualified to purchase with 10% down for a mortgage of $527,000. After October 17th, this home buyer would qualify for a $420,000 mortgage. This equates to a 20% drop in buying power. (All things being equal in terms of property taxes, income, debts, etc).

Buyers in this situation would have the option to make up the shortfall with more money down or add another person to the mortgage to help qualify or purchase a lower priced property. For detached homes with a suite the use of rental income could help the buyer make up some or all of that difference in qualifying.

Any buyers with an accepted offer in place will have till October 16th to have a firm financing approval in place. Buyers who secure an accepted offer who do not have a firm agreement from their lender (and the respective mortgage insurer) in place by October 16th will be subject to the rule change October 17th.

This is crucial timing so talk with your realtor and Dominion Lending Centres mortgage professional in detail if you are ready to make an offer or have an accepted offer with no current financing in place.

There are no specific deadlines in place by the Minister of Finance regarding pre-sale purchases set to close in 2017. So discuss a strategy with your DLC mortgage broker and realtor if you are a buyer in this situation.

The announcement also indicated a change later this year to mortgages for conventional borrowers with financing that is bulk-insured. This represents a number of banks and other lenders who choose this as a strategy for their portfolio. This could impact all borrowers (those buying or refinancing). We will gain more details on this specific outcome within our industry channels and provide an update as soon as possible.

Note – when watching the news on this subject always remember to do your due diligence and consult with your professional mortgage broker. The media does not always get the details correct and can provide information that can be confusing.

To read the news release http://www.fin.gc.ca/n16/16-117-eng.asp

If you have any questions on your specific situation feel free to contact your local Dominion Lending Centres mortgage professional. We’re here to help you navigate these changing – and sometimes confusing – new mortgage rules.

4 Oct

FIVE THINGS TO KNOW ABOUT THE BANK OF CANADA RATECUT

General

Posted by: Angela Vidakovic

 

Five Things To Know About the Bank of Canada Ratecut1.  This is now the lowest prime rate we have seen since 2009.   There have been two prime rate reductions already this year.

2.  The banks don’t always respond and reduce their Bank Prime Rate.  They pocket the difference as a profit when they are borrowing money, so it’s common after a rate reduction for them to respond slower and in the most recent reduction they did not match the rate decrease in full.

3.  While rates have been at a historic low (or close to it) for the past several years, this does not generally impact your ability to qualify for a higher loan amount.   So far, there has been no change to the qualifying rate required to get a variable rate mortgage, which is more than double that of the rate you will actually receive. Variable rate qualification is based on a rate of 4.64%.  In terms of a payment reduction for existing mortgages, only expect an approx $4.00 per 100K. This provides an opportunity to optimize your mortgage by keeping your payment the same or increasing it.

4.  Fixed Rates are primarily based on the bond market and Variable Rates are tied to prime rate- whom you select as your mortgage consultant for life must have a plan for watching these indicators, while also putting together a long term mortgage strategy for you.

5.  If you have a Variable Rate Mortgage or Line of Credit, you don’t have to do anything to receive the rate reduction- the lenders will do it for you automatically once they have decided how they will choose to follow the BOC’s announcement.


Want to ensure you are getting the best rate AND mortgage for you and your family? Contact me at Dominion Lending Centres so we can review ALL your options.