Well folks I just do not get it. I do not understand why smart person after smart person continues to sign on the dotted line for the first offer they are given upon mortgage renewal. Case in point that has brought this to a head for me was just a couple weeks ago. The mortgage was with one of the beloved big 5 banks whom we Canadians seem to hold in great awe and respect. Here is what it looked like:

Mortgage amount $259,997 in a new 5 year fixed rate term with a 20-year amortization at 4.10% making the monthly payment $1584.51 and the balance after 5 years $213,266.26.

I know for a fact that the SAME bank and many others were offering 2.59% for the exact same term. This is how that would have shaken out:

Mortgage amount with a rate of 2.59% in a 20-year amortization would have had a monthly payment of $1,387.40 and the balance at the end would have been $206,956.55.

That means that the client could have saved $197.11/month or $11,826.60 over the 5 years. On top of that is the crazy fact that they would have also owed $6,309.71 LESS at term maturity. $18,136.31 is the amount that this one person could have saved. That is one person out of a very large number of people doing the exact same thing so I must loudly repeat – Stop it!!

Let us examine the facts for a moment shall we?

1. Banks are a business and they are mandated to generate a profit for their shareholders and investors. Though success seems to have become a dirty word, this is actually a good thing for our economy. Our banks are strong and continue to report profits. A secret of the banking world that you need to be aware of is that the person you are sitting down with may receive a commission or a bonus based on how many mortgages they sign at the higher rates. I repeat that I do not have any problem with profit. I myself am commissioned based. What does concern me is the fact that the average consumer does not know this may be occurring on their transaction which may lead a them to make a choice without questioning their options.

2. The average consumer will shop 3 stores and visit many websites to save on big ticket purchase such as a TV or a car. Once they get to the dealership they will negotiate and play the game to get the best price so why do we not when it comes to our largest asset? Why are we not ensuring that we are not overspending $18,136.31?

3. There are a large number of lenders and banks in our country to choose from. They are solid institutions offering great mortgages to consumers. Research them and make an informed decision before dismissing them as unreliable. They too are watched over by the powers that be who work diligently to protect your rights as consumers.

4. There are so many well qualified mortgage professionals from Dominion Lending Centres who live and work in your community. Find one you like and have them find your best option if the whole thing seems like too much work.

Did you know that to switch your mortgage to a new lender at renewal, you will not incur a penalty, or pay legal fees or appraisal fees? It will probably take about 4 hours all together, which in the examples I used, works out to $4,534.08/hour. That is pretty substantial hourly wage and certainly worth your time.

So stop it and save your money.

Pam Pikkert

Dominion Lending Centres – Accredited Mortgage Professional

It is well known that when you are a First Time Home Buyer you can use up to $25,000 from your RRSP without paying any personal taxes. However, you will have to repay any amount withdrawn from your RRSP for down payment of a home purchase.

Who is a First Time Home Buyer?

Normally, you have to be a first-home buyer to withdraw funds from your RRSPs to buy or build a qualifying home.

You are considered a first-time home buyer if, in the four year period, you did not live in a home that you or your current spouse or common-law partner owned. This condition is particularly important because even if the house where you live is not in your name but your spouse or common law partner, you don’t qualify for this benefit.

Even if you or your spouse or common-law partner has previously owned a home, you may still be considered a first-time home buyer.

The four-year period:

Begins on January 1 of the fourth year before the year you withdraw funds; and

Ends 31 days before the date you withdraw the funds.

Example:

If you withdraw funds on March 31, 2016, the four-year period begins on January 1, 2012 and ends on February 28, 2016.

If you have a spouse or common-law partner, it is possible that only one of you is a first-time home buyer.

RRSP withdrawal conditions

* You have to be a resident of Canada at the time of the withdrawal.

* You have to receive or be considered to have received, all withdrawals in the same calendar year.

* You cannot withdraw more than $25,000.

* Only the person who is entitled to receive payments from the RRSP can withdraw funds from an RRSP. You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP. Your RRSP issuer will not withhold tax on withdraw amounts of $25,000 or less.

* Normally, you will not be allowed to withdraw funds from a locked-in RRSP or a group RRSP.

* Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP. If this is not the case, the contributions may not be deductible for any year.

When do you I have to repay the amount withdrawn?

Generally, you have up to 15 years to repay to your RRSP(s) the amount you withdrew from them for you down payment. However, you can repay the full amount into your RRSP at any time.

Example:

If you withdrew $15,000 from your RRSPs for the down payment of your house you will have to repay to your RRSPs $1,000 per year for the next 15 years.

For more information contact contact your Dominion Lending mortgage professional or visit www.cra-arg.gc.ca.

Jorge Aragon

Dominion Lending Centres – Accredited Mortgage Professional

Just a few years ago, a federally imposed limit on how much equity you could access via refinancing your home was tightened to 80% of value. The requirement to maintain a minimum 20% equity in your property has made refinancing for many people difficult. Those who only put 5% or 10% down must wait years to build up to the 20% minimum as it is.

Over the last two years, I have seen many clients with more than 20% home equity yet carrying higher consumer debt load seek a refinance to access equity, pay off or consolidate all of their consumer debt. Many clients just did not have enough equity to make this possible.

Fast forward to spring 2016 and we are seeing a sellers’ market leading to bidding wars and increased home valuations. This recent surge may be of benefit to similar existing homeowners that do not wish to sell.

A refinance does not make what we owe disappear. We are looking to move debt from bad (unsecured) debt to good debt where it is secured against an appreciating asset. We are looking to wipe the slate clean and get a fresh start! Having high usage of your credit limits is likely eroding your credit score, adding needless stress to your life and costing you more over time than is necessary.

The major benefits of a refinance are roping all expenses into one low interest debt, reducing your overall monthly interest cost yet most important for families is the monthly cash flow improvement! I often recommend that some of the monthly savings be added to the mortgage prepayments to accelerate the debt reduction while keeping some cash left in pocket for lifestyle enjoyment!

Many people with fantastic jobs and incomes simply get a bit too deep into multiple lines of credit, new car payments and credit cards. It happens all too quickly where people overestimate what they can comfortably afford. The focus of debt cost unfortunately has shifted where folks are not concerned about the total debt amount or payoff schedule, the determining factor seems to have evolved to whether they can handle the monthly payment; cars, toys, vacations all start to add up.

These groups of clients had been able to make all payments, yet the debt did not seem to be reducing year over year. Their options were second mortgages, private mortgages or refinance to the 80% max and still keep a pile of monthly consumer debt repayments. Ultimately, I had recommended that a few clients opt to sell their home to pay off the entire debt load, and put 5-10% down on a newer home. This was the only way to access more of their equity to pay everything off. The average monthly savings that I have seen for these groups of clients was between $1,000 – $1,600/month!

This is a prime time to reassess your current financial situation. If you owe significant amounts on credit cards, lines of credit or other consumer debts, there may be enough headroom in your equity to allow you to refinance. Another prime reason to consider a refi would be property improvements and renovations, where you may be accessing equity yet the added debt may be directly offset by the potential increase in property value.

Ultimately, it is best to consult with a Dominion Lending Centres mortgage professional first. Let the math and numbers show you whether it makes sense to make a change. Our job is not to sell you a mortgage. We offer solutions or strategies through showing the numbers in a way that may have not occurred to you before!

Kris Grasty

Dominion Lending Centres – Accredited Mortgage Professional

First time home buyers look to their families, the media and the Internet for all their information on how to buy a home. As a result, they know that they need 5% of the total home purchase price to buy the home of their dreams. While this is true, there are a few things that family may not tell you or they may not be aware of. Putting down as much as you can afford is a great idea. We have all heard that mortgage rules are tightening, the economy in Alberta is down and lenders are being a lot more selective in who they give mortgages to. What you may not have heard is that the mortgage insurers – CMHC, Genworth Financial and Canada Guaranty – are also looking at lenders more carefully before approving mortgage default insurance. They are looking closely at employment, credit and how likely you are to stop paying your mortgage. While 5% is the minimum, if you have a few late payments from your college days or a collection from a cellphone company on your credit report, they will think twice about giving you an approval. However, if you put 10% down they will look at your differently. Putting twice the minimum down payment shows commitment. It shows that you have “skin in the game” and are less likely to default on your mortgage. If they are reluctant to approve your mortgage, a higher down payment can sway their decision. The second advantage of a larger down payment is lower monthly payments. Let’s face it, when you get into a home, your paid off car will eventually need to be replaced and you will now have car payments and repairs chipping away at your monthly income. If you are newly married, child care expenses, baby furniture and starting an RESP will come up. You may be able to afford higher monthly payments, but you will be better off down the road if you have lower payments. The third advantage is a lower CMHC premium rate. The bigger your down payment, the lower the risk to the mortgage insurer and the rate that they charge you. With 5% down you must pay 3.60% on the mortgage balance. On a home purchase of $350,000 this comes out to a premium of $11,970. 10% down results in a lower premium of $7560 and if you can make a 20% down payment you can avoid mortgage default insurance and pay $0. Why a Big Down Payment is Better Finally, the bigger your down payment the smaller your mortgage balance is to start. As a result you will save lots of money over the term of your mortgage. A 5% down payment will result in a payment over 25 years of $115,381 of interest. 10% down lowers this to $108,042 and 20% down lowers this to $93,786. In other words, if you can come up with a 20% down payment you will save over $21,000 in interest over the term of your mortgage. This is based on today’s historically low interest rates. I’m sure that sometime over the next 25 years rates will go up to the 5.79% that people were paying 6 years ago and they could go higher. In conclusion, if you have a chance to put more money down on the purchase of your new home, you should consider it. You can save BIG TIME money by doing so. If you need more advice, contact your local Dominion Lending Centres office.

David Cooke

Dominion Lending Centres – Accredited Mortgage Professional

Home renovation shows are very popular today and are one of our favorite shows to watch. These shows are not only entertaining but tend to lead you to think how easy and quickly is to renovate your home. And we know that viewers enjoy the shows more when they are filmed in Canada as you recognize certain landmarks or streets which you see often when you watch shows like “Love it or List it Vancouver” and “Game of Homes”. However, the television shows are not realistic, highly edited and can mislead people on the renovation process.

Despite this we have become more knowledgeable about design and we definitely want the latest interior finishes and stylish open interiors that we see on television shows. Having said that, homeowners really need to understand what all the important factors should be considered when thinking a home renovation.

Financing:

Most home renovations shows do not talk about the financing aspect of the renovation. Before you commit to a renovation project, meet with a Mortgage Expert at Dominion Lending Centres to help you assess your financial situation. Every person’s financial needs and options are unique. When asked, most people say they are financing their renovation with a line of credit. While you are only required to make payments on the interest only, many people are under the impression that they can manage paying the interest and go ahead with the renovations. The danger with using this type of financing is that eventually the principal has to be paid and you end up paying huge interest costs.

A HELOC “home equity line of credit” will give you a lower interest rate… if you currently have one. If you don’t, you will need to have at least 35% of equity in your home to qualify for one (based on the current mortgage rules by the Bank Act). Currently, you can refinance up to 80% of the value of your home for a mortgage based on the appraised value. With today’s historical low interest rates, you will end up paying a higher interest rate on a line of credit or HELOC, and you are unlikely to pay down the principal compared to a lower interest rate with a closed mortgage where you pay principal and interest, saving you thousands in interest. Another thing to consider if you are unable to pay off the debt quickly is that you might be better off to refinance your mortgage. It might be more beneficial to get a one to five year locked mortgage below 3 per cent by saving interest up front and using your lender’s pre-payment privileges. If you currently have a fixed rate mortgage, find out what would be your penalty for paying it out early, it might still be worth it to refinance.

The budget:

On television, the designer has $80,000 to renovate an entire main floor including the kitchen and finish the downstairs basement. The question is – are those numbers realistic? The reality is that we, as viewers, are not aware what has been factored into those numbers by the television producers such as design fees, permits, labour, material costs, promotional giveaways, etc.

In order to have a realistic budget for your renovation, do research before you commit. Some people get set in a specific number set in their mind without knowing what is involved in the total scope of the renovation. It is critical in this step to work with a professional renovator as it will reduce surprises. Homeowners need to take responsibility for the renovator they select and for doing their homework. As a general rule, if the price is too good to be true, it probably is. So don’t automatically go for the lowest price.

A professional renovator will work with you to create a detailed budget and timeline for your project so you know what to expect. Once you start selecting materials it is a good idea to take the budget with you to ensure you stay within your budget. There are times that homeowners run out of money midway through the project because they made too many changes along the way or ended up selecting more expensive materials.

Timeline:

On television, renovations are completed within a few short weeks. The homeowners come in and are mesmerized by the transformation. The reality is that sometimes it can take up to eight weeks just for the kitchen cabinets to get built. Before you start your renovation, prepare a timeline with a renovator so you know what to expect.

By doing this, you will have an exact idea how long it will take to do the tasks and therefore plan accordingly. Also, it’s important to remember that quality, professional renovators aren’t necessarily available right away. Some are booked months in advance, depending on the project. In order to stay on track, materials have to be bought ahead of time and certain items could be out of stock. It might take additional time to get them or in some cases replace them. It is important to remember that even fast projects still take a few months, while bigger projects can take up to a year to complete. Therefore, you need to be prepared.

Design and planning:

On most of the renovation shows you have the interior designer come into the home with their assistants and an iPad and start moving walls and design the new space within minutes without consulting the clients. Most clients are not going to allow the designer take free reins without their input.

In real life, renovations can be boring compared to television. The reason is that there is no excitement because every step of the process is well planned. When it comes to structural changes in the home, such as moving walls, doors, windows or adding additions a structural engineer may be required in order to obtain a permits. A renovator needs to plan for these type of engineering costs and time delays in order to complete the project.

Summary, when you do your own renovations it may not have all the excitement that you have seen on the television shows but we do know this. When you take into consideration the above factors, you will be happy with the end result. One, which despite the time, effort and money, you will be proud to come home to.

Alisa Aragon

Dominion Lending Centres – Accredited Mortgage Professional

The two most frequently asked questions I get are:

1. What are your best rates?

2. What is the difference between fixed and variable rates?

Question #1 is actually more complicated than question #2. Why? Because rates are not the only thing you should be looking at when deciding what mortgage product to contract to. Recently, a client brought us a product that had a 1.99% fixed rate for a 5 year fixed term. This was extraordinary, and we did our due diligence to see what the product was all about. We found out that the term was 5 years and the interest rate was fixed at 1.99%…..for the first 6 months. Then it went up to the posted fixed rate of 3.15% for the remainder of the term. Not nearly as stellar as it appeared. Rule of thumb: If it is too good to be true, it is too good to be true! Make sure you know what your mortgage product entails. It is in your best interest to find out all the hidden costs behind the mortgage product that you don’t see up front.

Which leads us to question #2, What is the difference between fixed and variable rates?

Fixed Rates For the bank, this is a lower risk. It is usually higher than a variable rate. It remains constant or fixed for the term of the mortgage which means that your payments remain constant for the term of the mortgage. This rate is based on typical rates that are being offered by banks at the time the client enters into the mortgage contract. It’s a lot like “gas wars”. When you see gas stations that are in close proximity lower and raise their prices based on what the gas station across the street is doing, you see that these gas stations are competing with one another. It’s the same with banks. They watch each other’s prices and react to what’s going on “across the street”.

Variable Rates This is a higher risk rate for the bank. It is harder to qualify for this rate, which means the bank allows less debt in your financial profile compared to qualifying for a fixed rate. A variable rate can change during the term of the mortgage which means your actual mortgage payment can either increase or decrease during the term of the mortgage.

A variable rate is also a higher risk for the client as rates can go up which directly affects your payment amount. The last 15 years has seen rates generally decrease and clients that have taken advantage of the variable rate have not seen an increase in mortgage payments. But that’s not to say that it can turn at any time. Historically, we are at the lowest rates that we’ve seen but no one has a crystal ball.

Variable rates are quoted as Prime minus a certain amount or Prime plus a certain amount. What does this mean? Variable rates are based on the Bank of Canada, a governing institution for all Canadian banks. The Bank of Canada sets the benchmark for interest rates, based on inflation. Generally speaking, if the economy needs to be stimulated and is in a state of deflation, interest rates along with the Canadian dollar are lower. If the economy needs to be slowed down and is in a state of inflation, interest rates are higher along with the Canadian dollar. Currently, the benchmark rate for the bank of Canada is 2.5%. But most banks have adopted 2.7% as its Prime rate, basically because 2.5% is just too low for the bank. Thus, a bank might offer you Prime minus 0.2% (2.7% – 0.2% = 2.5%). Remember, the Bank of Canada reviews its benchmark rate about 8 times a year. Depending on the state of the economy, they may raise or decrease the benchmark rate which will affect your variable rate.

An example:

You enter into a contract rate of Prime – 0.2% (2.5%). 18 months later, there is a surge in foreign investment into the country which stimulates the economy. The Bank of Canada reviews its benchmark rate and decides to raise the benchmark rate to 2.75%. Your bank follows suit and raises its Prime rate from 2.7% to 3%. Your contracted rate for your mortgage is still Prime – 0.2%. But instead of 2.5% you are now paying 2.7%. Your mortgage payment will also go up to reflect the new rate.

For more information about fixed and variable rates please a mortgage professional at Dominion Lending Centres. We’d be pleased to answer any questions you have.

Geoff Lee

Dominion Lending Centres – Accredited Mortgage Professional