7 Nov

WHAT’S YOUR NUMBER? YOUR MAXIMUM MORTGAGE NUMBER

General

Posted by: Angela Vidakovic

 

What’s YOUR Number? Your Maximum Mortgage NumberWhat is the maximum mortgage amount one now qualifies for with the rules that came into effect on October 17th?

Short answer: LESS. A minimum of 20% less, in fact.

Before October 17th, the lenders calculated the maximum mortgage amount based on the contract rate of 2.49%, but now it is based on the Bank of Canada benchmark rate of 4.64%

Here are three random scenarios that I have created to outline borrowers’ qualifying power before and after the change. Note they are all based on  25-year amortization, the new qualifying interest rate (5-year Bank of Canada benchmark, currently 4.64%) as well as a GOOD credit score of 680 or greater. The first two are based on 5% down; the third is based on a 20% down payment, which does not require mortgage insurance.

Scenario #1 – young professional

Gross Household Income $75,000

Monthly Expenses $450 (car loan and  student loan)

Monthly Strata & Property Tax $484

Maximum Purchase Price Now $370,000 ($18,500 down payment)

Before Rule Change $435,000

Scenario #2 – young professional couple

Gross Household Income $140,000

Monthly Expenses $1,230 (car & personal loans, unsecured LOC, credit card)

Monthly Strata & Property Tax $584

Maximum Purchase Price Now $725,000 ($47,500 down payment)

Before Rule Change $840,000

Scenario #2 – established Gen-X with a family

Gross Household Income $180,000

Monthly Expenses $2,300 (car & personal loans, credit card)

Monthly Property Tax $417

Maximum Purchase Price $960,000 ($71,000 down payment required)

(Mortgage amounts over $999,999 are not eligible for default insurance. Therefore one would be required to apply a 20% down payment.)

This is just a quick and dirty summary of three simple scenarios. Now more than ever, we as mortgage consumers need to get pre-qualified before making any real estate-based decisions. The average cost to buy a single-family detached home in my area is $1,175,000, townhouses are approximately $535,000, followed by condos priced around $377,000.

My suggestion, and the first thing that one should do if you are looking to re-finance or purchase a new home, is to contact your trusted Dominion Lending Centres mortgage broker to find out exactly how much you qualify for.

Don’t get caught up in the emotional experience of buying a new home. Make sure you treat it like any other business decision: the numbers need to make sense first, then you need to figure which parts of your WANT and NEED list you can live with and live without.

For more details on changes to the mortgage rules, please read DLC’s “Chance of Space: New Mortgage Rules” guide by CLICKING HERE.


 written by: MICHAEL HALLETT

4 Nov

A COOL CAR, OR A HOME OF YOUR OWN?

General

Posted by: Angela Vidakovic

 

A Cool Car, Or A Home Of Your Own?Thinking of purchasing or leasing a new car?

Some quick math for you.

A $400.00 payment will reduce your total mortgage qualification by $100,000.00

Ouch.

I will confess that I think about new cars for at least a moment or two daily, fast cars and I go back a few decades and as I hit ‘mid-life’ temptations abound. Apparently there are 265 new car models to choose from, so many cars so little time.

I do not feel that old, but I do recall when most manufactures had three models to choose from, no mini vans, and few SUV’s.  Never mind the wide variety of niches being filled with Hybrid-this and crossover-that.

Once upon a time BMW offered 3, 5 & 7 series.  Today they offer 1, 2, 3, 4, 5, 6, 7, 8, i, X, Z etc…

Honda as recently as the early 90’s was three models, whatever happened to the prelude anyways?

But what does this have to do with mortgage financing?

The simple math is this;

$13,000.00 of consumer debt (credit card, line of credit)

OR

A student loan payment of $400.00 per month

OR

A Monthly car payment of $400.00 (Lease or Finance)

Will eliminate $100,000.00 of mortgage money from what one would otherwise qualify for.

Nice car, nice digs…tough to finance both, tougher still to finance the car before the home.

The moral of the story is this;

1. Eliminate debt from your life (and take on no new debt).

2. If you are Incorporated, be sure to have the actual payments flowing directly from your Corporate bank accounts.  This will reduce the impact in most cases.

3. If you must personally Lease or Finance a new car, do so after settling into your new home and making certain that your budget can handle it.

Keep in mind that qualifying for a mortgage involves a rigorous review of your debt servicing abilities, and you are largely ‘protected from yourself’.  However qualifying for a vehicle requires little more than a pulse.

You are the master of your own demise when it comes to consumer debt.

There is little to no oversight.  Personally I have yet to see clients in foreclosure over a mortgage payment alone.  Often is the vehicle, boat, RV, credit cards, unsecured line of credit that all came after the mortgage which are the root of the problem.

Debt is the enemy, but at least mortgage debt is attached to an appreciating asset in which you live at 50 year record low interest rates.

Although this one might sleep a family four, no?

A Cool Car, Or A Home Of Your Own?

 

 written by:DUSTAN WOODHOUSE

3 Nov

TWO BIRDS, ONE STONE: HOW A REVERSE MORTGAGE HELPED FINANCE A POST-GRADUATE DEGREE AND A PURCHASE OF AN INVESTMENT PROPERTY

General

Posted by: Angela Vidakovic

 

Two birds, one stone: How a reverse mortgage helped finance a post-graduate degree and a purchase of an investment propertyI recently met a couple that took out a reverse mortgage to purchase a house in Hamilton, ON. Their daughter was attending McMaster University, and was just starting her post-graduate degree.

After spending close to $25,000 over 4-years in rent, her parents decided to get into the landlord business!

Here’s how the numbers worked out:

  • Clients 58 & 60 years old
  • $3M home in Oakville, ON
  • Approved for $600K reverse mortgage
  • McMaster Rental Property – $2375 monthly rental income (daughter lives rent free), or $28,500 rental income per year
  • CHIP Reverse Mortgage Interest – $28,500 (4.75%)

Now at first glance, it looks like these freshman landlords will simply break-even as interest expense is equal to rental income.

But there are a few considerations:

  • Daughter is living rent-free – parents are saving $5700/year in rent
  • CHIP Reverse Mortgage Interest is tax deductible against total taxable income
  • $3M Oakville home – if it increases in value long-term, by only 1% per annum, this will cover the interest expense & more
  • The flexibility of deciding how much or how little interest payments to make on their reverse mortgage puts these clients in an enviable cash-flow position.

House rentals are not for everyone as they tend to be a “hands on” investment. But for the right client, rental properties can be a lucrative opportunity as part of a diversified investment portfolio.

To learn more about how this CHIP Reverse Mortgage can work for you, contact the mortgage professionals at Dominion Lending Centres.

written by:ROLAND MACKINTOSH