REVERSE MORTGAGES – NO, WE DON’T WANT YOUR HOME!

Reverse Mortgages have had their share of misconceptions. In fact, we are often approached with false assumptions and unfounded facts about the product that steer the public to think of the product in a negative light. This article will cover one of the most common myths and the real facts behind this myth that has long been misinterpreted.

Myth: One of most common misconceptions that we hear time and time again is that you will lose ownership of your home to us.

Fact: This statement is false. HomEquity Bank, the provider of the CHIP Reverse Mortgage has taken several measures that ensure the protection of your equity.

1) Retain ownership of your home: Just like with any other mortgage, your home is used to secure the loan, which means that HomEquity Bank is registered as a standard charge on title. You, as a customer DO NOT transfer ownership of your home to us. In fact, once it’s time to pay back the mortgage you or your heirs have the choice to settle the loan however you or they want. Selling the home is the most common option, but it is not mandatory.

2) Our conservative lending practices: In our ads and on our website, we remind the customers that they can get up to 55% of the value of their home in a reverse mortgage loan. Of course, this amount does depend on the borrower(s) age, their property type as well as the location of their home. But as a rule of thumb, the younger the borrower is, the less they will qualify for and the older the borrower is, the more they will qualify for. This is because we want to make sure that the borrowers reverse mortgage loan doesn’t exceed the value of their home.

3) The potential value appreciation of your home: Many people don’t realize that their home may appreciate in value, however the interest that accrues only accumulates on the small borrowed amount of the home. That is why we say in our marketing pieces that “99% of homeowners have money left over” when their loan is settled.

This graph illustrates how the interest is affected when a home appreciates in value. For illustration purposes, we have used 3%, a modest level of home appreciation, which allows for equity preservation after a borrower takes out a CHIP Reverse Mortgage for 15 years. This example illustrates the following:

• Home appraised at $500,000.
• Homeowner(s) qualify for $200,000 (40%) of the value of their home in a CHIP Reverse Mortgage.
• The homeowner(s) take the CHIP loan for 15 years before they move, sell or pass away.
• The home appreciates at 3% and the new home value after 15 years is $778,984.
• The principal plus interest total $457,288 and the estate still has $321,696 in equity (41% of the home value at time of sale).

Home Equity Preservation Graph – CHIP Reverse Mortgage
The following graph is for Illustration purposes only *

4) Negative equity guarantee – Many people ask, “what happens if the house doesn’t appreciate in value, and in fact depreciates?” Our negative equity guarantee ensures that if your home depreciates in value at the time the home is being sold, and the loan amount due is more than the sale amount of the property, the homeowner or the heirs will not be financially penalized for being on title of the home. In fact, HomEquity Bank, will pay the difference between the sale amount and the loan amount when the loan amount due is more than the sale amount of the property. However, just like all other home equity loans, the homeowner(s) must keep their property taxes up to date, and maintain the condition of their home. If these conditions are met, the borrowers will never owe more than the fair market value of their home, when the home is sold.

The above measures are all the reasons why a CHIP Reverse Mortgage customer will not lose their home to the lender. A CHIP Reverse Mortgage provides a great solution for a growing number of Canadian retirees. For more information on this solution for homeowners 55+, contact your local Dominion Lending Centres mortgage professional.

* The illustration uses conservative values:

• Example based on the national price of Canadian homes of $500,000 (Average home price in Canada is $519,521 according to the CREA, February 2017)
• Example based on CHIP Reverse Mortgage advance of 40%
• Home appreciation of 3.00%. Average home appreciation is 7.16% annually. (Source: CREA, Canadian Real Estate Association 15-year national house appreciation average, February 2017). HomEquity Bank makes no representations on future housing market performance.
• CHIP interest rate of 5.59%. The Annual Percentage Rate (APR) is 5.79%, which is the estimated cost of borrowing for 5 years expressed as an annual percentage. The APR includes interest and closing costs.

Shari Letsos
Senior Mortgage Professional
604-723-7721
Sletsos@dominionlending.ca
www.ShariLetsos.ca
Dominion Lending Centres Mountain View

So you have saved, and saved and you are finally ready to start house hunting…but before you do, there are a few things that you should be looking into BEFORE you start buying. Namely, your mortgage options. Did you know that there are various mortgage products? Or that each mortgage product has it own personality? They all do, and there is a mortgage product that is just right for you…we just have to find it first!

1. Understand your Expenses.

a. Do you know what you spend in a month? Do you have a monthly budget? With buying your new home, there are several associated costs that you should consider. These include the down payment, closing expenses, ongoing maintenance, taxes and utilities. If you have a budget, revamp it to maximize your saving. If you don’t have one, it is a simple thing to do! Track your spending by listing your household income and your expenses. This will give you what you spend in a month, how much you can save, and a guideline to follow.

2. Knowing your Job Stability

a. This is key to understanding and finding the right mortgage. You need to if you are in an in-demand occupation, or if your position maybe obsolete in a few years. You should also consider the length and term of your position—how long have you been there and how long are you planning to be there?

3. Consider your Limits

a. You and your Dominion Lending Centres broker need to understand what your payment and price limits are. This will determine if a fixed or variable rate mortgage is better for you.

b. You also need to know your amortization. This is the length of time that it will take for you to pay off your mortgage, based on the factors we previously discussed.

4. Know what you want in your home

a. To ensure that your home will grow with you consider these 4 questions:

i. Location: Are you close to the amenities you desire?

ii. Size: Can you comfortably accommodate your family and daily activities?

iii. Special Features: What do you want for added comfort & convenience in your home

iv. Lifestyle: Are you planning on adding to your family, or moving away soon?

Finally, and this is CRITICAL! Get PRE-APPROVED before you begin shopping for your new home. Know your financing, and what is available for you—this way you can shop stress free and you can negotiate for the home of your dreams!

Shari Letsos
Senior Mortgage Professional
604-723-7721
Sletsos@dominionlending.ca
www.ShariLetsos.ca
Dominion Lending Centres Mountain View

INSURED, INSURABLE & UNINSURABLE VS HIGH RATIO & CONVENTIONAL MORTGAGES

You might think you would be rewarded for toiling away to save a down payment of 20% or greater. Well, forget it. Your only prize for all that self-sacrifice is paying a higher interest rate than people who didn’t bother.

Once upon a time we had high ratio vs conventional mortgages, now it’s changed to; insured, insurable and uninsurable.

High ratio mortgage – down payment less than 20%, insurance paid by the borrower.

Conventional mortgage – down payment of 20% or more, the lender had a choice whether to insure the mortgage or not.

vs

Insured –a mortgage transaction where the insurance premium is or has been paid by the client. Generally, 19.99% equity or less to apply towards a mortgage.

Insurable –a mortgage transaction that is portfolio-insured at the lender’s expense for a property valued at less than $1MM that fits insurer rules (qualified at the Bank of Canada benchmark rate over 25 years with a down payment of at least 20%).

Uninsurable – is defined as a mortgage transaction that is ineligible for insurance. Examples of uninsurable re-finance, purchase, transfers, 1-4 unit rentals (single unit Rentals—Rentals Between 2-4 units are insurable), properties greater than $1MM, (re-finances are not insurable) equity take-out greater than $200,000, amortization greater than 25 years.

The biggest difference where the mortgage consumers are feeling the effect is simply the interest rate. The INSURED mortgage products are seeing a lower interest rate than the INSURABLE and UNINSURABLE products, with the difference ranging from 20 to 40 basis points (0.20-0.40%). This is due in large part to the insurance premium increase that took effect March 17, 2017. As well, the rule changes on October 17, 2017 prevented lenders from purchasing insurance on conventional funded mortgages. By the Federal Government limiting the way lenders could insure their book-of-business meant the lenders need to increase the cost. We as consumers pay for that increase.

The insurance premiums are in place for few reasons; to protect the lenders against foreclosure, fraudulent activity and subject property value loss. The INSURED borrower’s mortgages have the insurance built in. With INSURABLE and UNINSURABLE it’s the borrower that pays a higher interest rate, this enables the lender to essential build in their own insurance premium. Lenders are in the business of lending money and minimize their exposure to risk. The insurance insulates them from potential future loss.

By the way, the 90-day arrears rate in Canada is extremely low. With a traditional lender’s in Canada it is 0.28% and non-traditional lenders it is 0.14%. So, somewhere between 99.72% and 99.86% of all Canadians pay their monthly mortgage every month.

In today’s lending landscape is there any reason to save the necessary down payment or do you buy now? Saving may avoid the premium, but is it worth it? You may end up with a higher interest rate.

By having to wait for as little as one year as you accumulate 20% down, are you then having to pay more for the same home? Are you missing out on the market?

When is the right time to buy? NOW.

Here’s a scenario is based on 2.59% interest with 19.99% or less down and 2.89% interest for a mortgage with 20% or greater down, 25-year amortization. In this scenario, it takes one year to save the funds required for the 20% down payment.

• First-time homebuyer
• Starting small, buying a condo
• 18.9% price increase this year over last

Purchase Price $300,000
5% Down Payment $15,000
Mtg Insurance Premium $11,400 (4% as of March 17, 2017)
Starting Mtg Balance $296,400
Mortgage Payment $1,341.09

Purchase Price $356,700 (1 year later)

20% Down Payment $71,340
Mtg Insurance Premium $0
Starting Mtg Balance $285,360
Mortgage Payment $1,334.40

The difference in the starting mortgage balance is $11,040, which is $360 less than the total insurance premium. As well, the overall monthly payment is only $6.69 higher by only having to save 5% and buying one year sooner. Note I have not even built in the equity that one has also accumulated in the year. The time to buy is NOW. Contact your local Dominion Lending Centres mortgage professional so we can help!

Shari Letsos
Senior Mortgage Professional
604-723-7721
Sletsos@dominionlending.ca
www.ShariLetsos.ca
Dominion Lending Centres Mountain View

WHY YOU SHOULD SPEAK TO YOUR MORTGAGE BROKER BEFORE YOU SELL YOUR HOME

While many people will speak to a mortgage broker before buying a home, few people call a mortgage broker before selling a home. Calling could save you thousands of dollars and many sleepless nights.

Why? Brokers understand mortgages and ask the right questions. How long do you have remaining in your present mortgage? Do you know if it’s portable to a new property? Have you heard of increase and blend? A mortgage broker can help you to anticipate a penalty to break your present mortgage and see if porting or taking your mortgage to your new property is a good idea. Need more money? Blend and Increase will allow you to increase your mortgage amount and blend the old rate with the present day rate and save you thousands in penalties.

During a recent trip to our nation’s Capital with folks from Dominion Lending Centres and other mortgage groups, an Ottawa insider made an interesting comment: “We don’t care about consumer debt, because we don’t guarantee it.”

This comment was made in an effort to justify recent increased restrictions placed on borrowers taking out insured mortgages (i.e. backed by CMHC, Genworth, or Canada Guaranty – effectively the federal government) due to increasing concerns in Ottawa around the optics of “taxpayer backed” mortgages.

This use of such hot button language would be laughable if taxpayers understood a few key things about CMHC in particular:

1. It is incredibly profitable and has generated tens of billions of general revenue for the Federal Government over the years. (This is arguably one of the most profitable Crown Corporations ever created).
2. The actual numbers as to just what CMHC (taxpayers) are “on the hook” for. (see chart below).
3. The incontrovertible fact that the government will, should the need arise, bail out the privately-owned banks should they ever truly misstep and get into trouble – meaning all debt in Canada is truly government guaranteed when you get right down to it.

Source: CMHC

What hit me as most stunning about such a laissez faire attitude towards consumer debt, setting aside the question of protecting consumers from themselves (got a pulse? No job? No established credit? No problem, here is a 14% car loan and a $20,000 credit card) was that the very people managing these “taxpayer guaranteed” mortgages cannot see the problem with a system in which the major banks approve the mortgage itself under strict guidelines and then the moment it is approved offer the newly leveraged client an additional $5,000 – $80,000 in unsecured credit “just in case” the new homeowners “need” new furniture, a new car, a vacation, etc.

How is that not a significantly relevant factor in the stability and security of the guaranteed mortgage product?

The real irony in this?

The Fed backs these mortgages through two sorts of lenders, and has arguably been creating policy to heavily restrict the competitive ability of one of the two channels. More tomorrow on just how misdirected the regulations being imposed are in their targeting of one supplier channel over another.

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View

The human brain struggles with distinguishing between a real or imagined threat.

Is it a snake? Or just a shoelace?

One may kill us quick, and so we react fast and think it through later… or maybe never.

Is the often cited, rarely critiqued, ‘debt-to-income’ ratio a snake or a shoelace?

A killer lying in wait or a meaningless footnote?

Federal regulators, and most mainstream media, would have us believe that at 167% it’s an Anaconda slithering through our sheets while we sleep, readying to swallow each household whole.

Two key points often absent from the debt-to-income conversation:

1.      The average household debt figure is largely irrelevant to the financial success of our individual household(s)

2.      What is my own debt-to-income ratio? And am I worrying about it at, say, 500%?

Perceived Reality

If one were to stop a citizen on the street and ask them if they believe today’s low interest rates have allowed Canadians to borrow more money than they should have most would say yes.

If one were to stop a citizen on the street and ask them if they believe today’s low interest rates have allowed housing prices to rise too high too fast, most would say yes.

If on the heels of these two questions you then asked one more question: Should government step in and tighten regulations?

Most at this point with this context would say yes.

And these citizens would be wrong.

Also by “yes” what these citizens mean to say is “regulate my reckless neighbours – not me, I’m cool.”

Framing matters

Let’s ask a few more questions.

Would it sound reasonable to take on a $2,000 mortgage payment with a household income of $100,000?

Is it fair to say that the same $100,000 per year household income could support a $2,600 monthly housing payment?

Likely we are going to get a “yes” response to both of these questions. As indeed these numbers are reasonable by any measure.

Numerical Reality

The $2,000 per month payment represents a monthly payment at today’s interest rates on a $500,000 mortgage balance.

Ah but what if rates double you ask? What if indeed…

The $2,600 per month payment represents a monthly payment at double today’s rates (when that $500,000 mortgage balance comes up for renewal).

Readers quick with numbers can see where this is headed, this household with their $500,000 mortgage balance and a $100,000 household income has a debt-to-income ratio of 500%.

Are they freaking out, suffering desperate times, readying a kidney for sale?

Not at all.

To be fair they do have concerns about debt levels – your debt levels!

The 500% debt-to-income household has things under control; they know that ~$1,000 of that ~$2,000 payment is principle reduction, a forced savings plan. They also know that the ~$1,000 interest component per month (fixed for the next five years) is way less than what they were paying in rent last year, and unlike rent this expense will not rise for five full years…and their mortgage debt balance will be dropping steadily. (by ~$60,000 over the first five years).

How many renters will see a ~$60,000 increase in net worth over the next five years? (this amount assumes 0% movement in home prices)

Nonetheless citizens remain concerned. Concerned that today’s low rates have allowed you to borrow more than you should have – and as you know, you are A-OK.

Guess what, your neighbours are OK too.

They are OK with a 500% debt-to-income.

Although few in Canada actually have a debt-to-income ratio this high; in fact Bank of Canada research shows that just 8% of Canadians have a debt-to-income ratio above 350%.

The example used in this piece is in fact a complete outlier, and not at all the norm; we are far more conservative than even these comfortable figures.

If we can be of assistance to you or someone you know, please do not hesitate to contact us.

Every homebuyer eagerly anticipates closing day. With the home purchase process completed, ownership of the property transfers from the seller to the buyer – you!

Closing date is negotiated as a condition of sale. You’ll typically have several weeks between the date that your agreement to purchase (sales contract) is signed and your closing date.

During that time, you and your real estate team will work to ensure that all the conditions of the sale are met so you can take possession on the agreed-upon date.

But what happens if a home sale falls through and you are unable to close?

Reasons why a home sale could fall through

It’s worth noting that the vast majority of purchase agreements close as expected. But the most common reasons why a sale may fall through are the following:

• The homebuyer fails to qualify for a mortgage.
• The homebuyer makes an offer to purchase a home based on the condition that they can sell their existing property first – and fails to do so.
• The homebuyer’s lender appraises the property at a value significantly lower than the agreed-upon purchase price. If the buyer can’t make up the shortfall from savings or the seller won’t lower the price, the buyer can no longer afford the property.
• There are title insurance or home inspection surprises. If a title report shows claims against the property or if a home inspection reveals serious flaws, it will jeopardize the sale.
• The homebuyer gets cold feet, changing his or her mind for any reason.

TIP: The best way to reduce the odds of failing to close on a home you want is to get mortgage pre-approval from the mortgage professionals at Dominion Lending Centres before you start house hunting.

Avoid making an offer on a potential money pit by scheduling a pre-sale inspection.

Your home sale falls through. Now what?

If you ever experience a sobering “it’s just not gonna happen” moment, contact your REALTOR® immediately.

If appropriate, they will send the seller’s agent a mutual release form, which releases both parties from the purchase agreement. As the buyer, you will endeavor to get your sales deposit back, and the seller is free to sell the home to someone else.

Problems arise if the seller refuses to sign the mutual release form.

Who gets the deposit?

If the seller refuses to sign the mutual release form, your deposit, which is held in a trust account, remains in trust until it is released by court order.

A disgruntled seller may decide to sue for damages that result from the failed purchase agreement. For example, they may end up selling the property to another buyer for less, resulting in a financial loss.

Or let’s say they purchased a home conditional on the sale of their existing home, and because you backed out, they either fail to close on that home or they must take out bridge financing to save the sale. They’ll probably want compensation for the extra costs and hassle.

While failure to close is an uncommon occurrence, it causes headaches for both buyers and sellers. Try avoiding it by getting mortgage pre-approval before you start house hunting, and by booking a pre-sale home inspection.

Most important, hire a real estate team. These experts can use their experience and professionalism to guide you through your sale, managing any bumps along the way.

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View

The Home Equity Line of Credit (HELOC) lets you split up your mortgage debt and borrow against your equity at low rates.

The unique feature of this mortgage product is that you can slice the pie (the mortgage balance) into various segments. All of it is registered against the subject property title as just one charge. This gives you the ability to diversify your risk in the marketplace.

If you had a $480,000 outstanding mortgage against a property (with 20% equity or a value of $600,000) you could divide it up into different segments. For example, you might place $200,000 in a variable-rate mortgage, $200,000 as fixed term and $80,000 line of credit.

Spreading the risk across different markets helps you plan for the future, as there are different governing bodies controlling different aspects of the marketplace.

Variable-rate mortgages and lines of credit (LOCs) are based on the prime lending rate and controlled by the Bank of Canada. Fixed rates are based on bond yields and dictated by the lenders themselves. Most other lenders follow the trends of the major chartered banks in Canada.

There are two types of line of credit in Canada: secured (registered against real estate) and unsecured (guaranteed by one’s promise to repay). I can only assist with secured LOCs. The secured LOC means less risk for the lender as it is based on the market value of the home to a maximum of 80% loan-to-value. Therefor the rate is lower and the borrowing ceiling is higher.  On secured LOCs the rate is Prime (2.70%) +0.50% which is 3.20%.  This means that if you had a primary residence with a market value of $500,000 free and clear of any other type of mortgage then you could secure a $400,000 HELOC against it at 3.20%.

Unsecured LOC rates vary depending on lender, but a safe starting range is 5-7%. And on unsecured LOCs, lenders tend to forward much less than secured LOCs; they range from $5,000-$40,000.

Here is an example of a client I recently assisted. We were able to obtain a HELOC mortgage product from a Canadian charter bank.

• Current residence (located in the Greater Vancouver area) appraised at $1.15MM.
• Current mortgage balance, $445,000.
  Maximum loan limit, $920,000 (80% of market value: 1,150,000 x 80%).
  They opted to secure the current outstanding balance of $445,000 into a variable-rate mortgage at Prime-0.45% or 2.25%.
  The additional equity of $475,000 was set up for access across 3 different LOCs; one at $159,000 and two at $158,000.
  These clients now have access to $475,000 for any future needs: renos, emergency, investment opportunities, post-secondary education for their children.

But while a HELOC  allows for product diversification and long-term planning, it is not for everyone. It can be a bad idea if it’s just used as access to easy cash. One needs to possess high self-discipline, as the funds are extremely accessible. Using the home as a piggybank can backfire disastrously.

A HELOC is also not available to all homeowners. There must be enough equity in the home before a lender will consider it.

Please contact your Dominion Lending Centres mortgage professional to discuss the potential of structuring a HELOC mortgage product against your home.

Get pre-approved today!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View

The last quarter of 2016 brought considerable change to Canada’s residential mortgage business. In October, the Department of Finance Canada announced new mortgage rules that have had a tempering effect on the market. Then, in late December, the Office of the Superintendent of Financial Institutions (OSFI) mandated a new capital framework for our three mortgage insurers. In the space of three months, our government has changed the rules of lending and borrowing, further complicating the residential mortgage world for Canadian homeowners.

Now borrowers must have their borrowing capacity stress-tested, not against the lender’s current mortgage rate offerings, but against a new qualifying rate, currently posted at 4.64% for insured high-ratio mortgages. This has reduced every homebuyer’s buying power. Some homebuyers who may once have qualified for a mortgage will now not qualify at all.

In addition, traditional lender funding mechanisms have changed, and low-ratio portfolio insurance premiums have increased. These changes have driven up interest rates for Canadian mortgage borrowers, some more than others. Since October, mortgage rates have gone up around 30-60 basis points with many lenders. This has created a double-whammy for the borrower – their purchasing power has gone down while interest rates have gone up.

For consumers, the recent changes represent a major step back, due to the new and far more complex mortgage pricing structures, product surcharges, risk and LTV-based surcharges and new qualification methodology. With these additional layers of complexity, it is doubtful that web-based direct-to-consumer or self-serve residential mortgage sites will be growing any time soon.

But all of these changes work to the benefit of professional mortgage brokers. Why? Because the more complicated the mortgage market gets, the greater the need for homebuyers and homeowners alike to lean on the expert advice of a professional mortgage expert.

Full-service mortgage brokers – the people who live mortgages every day as a sole source of income and are on top of the latest regulatory changes — can help homeowners navigate these increasingly complex waters. They understand the ins and outs of all the regulations; the strengths and weaknesses of the different financial institutions, from bank to non-bank lenders, trust companies to credit unions; and they look for a mortgage to suit the homebuyer, not the other way around. Mortgage brokers don’t work for lenders; they work for the homebuyer. So their advice is informed, unbiased and honest.

That’s why mortgage brokers have been getting a bigger share of the action over the last few years. As revealed in the 2016 CMHC Mortgage Consumer survey, “mortgage broker share of the market is trending upwards for renewers and refinancers, increasing from 21% in 2015 to 26% in 2016 for renewers, and from 33% in 2015 to 38% in 2016 for refinancers…. Market share is even higher among first-time buyers at 51%.”

Homebuyers and homeowners can trust a pro to explain what the new mortgage regulations mean to them, and what their options are so that they can make the most informed decision. A home is typically the biggest purchase people will make in their life. To buy a home without the insight of a professional, full-time mortgage broker just doesn’t add up. I’m proud to say that at CMLS Financial, we originate our business exclusively through the mortgage broker channel and we expect to see this channel continue to grow as a result of these most recent changes.

There was a time when car owners with some mechanical aptitude could perform general maintenance on their cars and only needed to visit their mechanic as a last resort. Then car engines became more computerized, and car owners no longer had the specialized tools and skills. Mechanics became more sophisticated and knowledgeable, and demand for their skills increased.

Today, the inner-workings of a mortgage in Canada is much like the inner-workings of a car engine. Better off in the hands of an expert.

Get pre-approved today!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View