22 May

Are Your Mortgage Terms More Important Than Rates?

Mortgage Tips

Posted by: Roberto Pelaccia

This is a great question! A lot of people, especially first time – of even second time home buyers – don’t necessarily know the answer to this question. The reality is that 70% of Canadians break their mortgage before their renewal date comes around. This is a significant number! Especially when you’re looking at paying a penalty if you want to break your mortgage before the renewal date.

In this article I’m going to talk about whether or not mortgage terms are in fact more important than rates. So keep reading if this is something you’ve ever wondered about.

Reasons you may need to end your mortgage early

Let’s be honest here and say that life happens. In this day and age, life moves so fast that it’s impossible to predict where we will be next year, let alone a few years from now. So chances are, you may need to get out of your mortgage early. Here are some reasons why:

Divorce or separation

No one believes that they will get divorced, but unfortunately, approximately 38% of couples divorce before their 30th anniversary. This means, people have a four in ten chance of getting a divorce. Due to this rate, you may need to get out of your mortgage early so you can purchase a home for yourself and move on with your life. You wouldn’t want to be forced to pay a penalty or even remain in the house until your mortgage renewal comes around right?

You get a random offer

This does happen. Someone could be driving by your house and they fall in love with it, so they have to have it. Maybe they even give you an amazing offer because they’re literally trying to convince you to move out of your house when you had no intention of selling. So, if you do get one of these once in a lifetime offers, wouldn’t you want to be able to take advantage of it?

Get a lower rate

The housing market is always changing. Therefore, you need to be able to change with it. It’s always a good thing to be able to break your mortgage early to take advantage of a lower rate.

Pay it off in full

What if the day comes that you have the ability to pay off your mortgage in full. This could be because you’ve been saving and have enough to do so, maybe you’re come into a lot of money through an inheritance. Whatever it may be, you always want the option to pay it off and walk around knowing you don’t have a mortgage and your home is officially paid for. Proper mortgage terms can make sure you have this option.

Mortgage terms are more important

Like I said before, life happens. And life rewards the people who are prepared for the unexpected. So, while there are a lot of things in your life you can’t control, making sure you have mortgage terms that will allow you some flexibility when unexpected things happen will help you avoid a lot of headache down the road.

The key is to avoid limiting yourself to what you can do with your life and your mortgage. Give yourself the flexibility to make changes and do something different. So, when you’re going through the process of buying a house, make sure you have those flexible mortgage terms because frankly, those terms may allow you to take advantage of lower rates down the line. That’s why mortgage terms are more important!

 

15 May

You Need To Have “Subject To Financing” Conditions In Your Offer

General

Posted by: Roberto Pelaccia

Buying a home is stressful. In fact, obtaining a mortgage and buying a home ranks in the top 20 highest life stressors. Of course there are so many positive aspects to buying a home and those things shouldn’t be forgotten throughout the process. However, to make sure you can focus on those positive aspects – like owning a home versus renting, getting to decorate the way you truly want, and building a family – you need to make sure you are taking the proper steps to protect yourself during the offer stage.

Now, what do I mean by this? Make sure that when you propose your offer, you ALWAYS have a section to specify that your offer is subject to financing. You may be thinking that this is obvious. Why would you submit an offer without knowing whether or not you’ve been approved for financing? But you can! And this is why you need to make sure you put in a condition that stipulates that your offer is subject to you being approved for financing.

In order for you to be approved for a mortgage, you have to meet the lender’s requirements and conditions. This typically involves looking at your down payment amount, your income, your employment, and the property you’re looking to buy. Should you not meet all the requirements of the lender, then you don’t get the mortgage and you can’t buy the house you made an offer on. This is why you absolutely need a subject to financing condition in your offer.

What exactly happens if you make an offer, don’t end up qualifying for a mortgage, and you didn’t put in a subject to financing condition? That’s a great question. In this specific scenario, you lose the deposit that you’ve put down on the house AND you have to come up with the rest of the money that is owed to the seller. If you’re not able to complete the purchase, the seller has the right to file a lawsuit against you because they have taken their home off the market to sell it to you and have lost out on other potential buyers as a result. So protect yourself, and add the conditions to give yourself some time to finalize the financing after the seller has accepted your offer. And, on top of that, give yourself the fail safe that allows you to back out without losing your deposit or being on the hook for the value of the home.

Another option is to go through the pre-approval process. This means that you’ve provided a bank or a broker with the necessary information – such as, letter of employment, proof of income, proof of employment, etc – to see whether or not you qualify for a mortgage and how much they are willing to lend you. We can typically hold a rate for up to 120 days before you actually want to buy a home.

At the end of the day, when a realtor asks you if you’ve been approved for financing, make sure you are working with someone who has done the work and verified your documents. Of course, always put a subject to financing condition in the offer letter they write up for you to send to the seller. It saves you a lot of potential stress and you can stay focused on the positive parts of buying a home.

8 May

How And Why You Need To Maintain A Healthy Credit Score

General

Posted by: Roberto Pelaccia

Having a healthy credit score is critical. What’s also critical is actually knowing what your credit score is and how it fluctuates over time. But, if you’re someone who had never checked their credit score or has no idea what your score currently is, you’re among the majority of Canadians today.

In fact, according to a recent study – done by BMO – over 50% of Canadians have never checked their credit score. In addition to those findings, 31% of Canadians have no idea how to check their credit score and another 20% are under the impression that checking their credit score somewhat penalizes them.

As I’m sure you can gather, the majority of the people I work with personally, are among these individuals who don’t know their score or who have never checked it. This is very common, so don’t worry.
In this article, I’m going to discuss some ways you can not only check your score but also some tips on how you can improve your credit score.

What is a credit report and how do I check it?

When you go to check your credit score, you will receive details that are referred to as your credit report. This report contains information about all the loans you’ve taken out over the previous six years. It outlines if you’ve been paying on time, what kind of credit limit is on each amount that you owe, how much you owe, and who has granted you these loans.
This is information that companies will request a copy of when they are determining whether or not they are going to loan you any sum of money. Keep in mind that any credit activity, both good and bad, stays on your credit report for six years.
If you’re unsure how to check your credit score, you can contact the two national credit bureaus in Canada: Equifax and TransUnion. They will provide you with a free copy of your credit report through the mail. You will need to provide them with photocopies of two pieces of identification as well as some background information. Once you do that, you will receive the report in the mail in 2-3 weeks time.

To request a copy of your credit report from TransUnion, click here.
To request a copy of your credit report from Equifax, click here.

You can also visit sites like Credit Karma. Here you can input some information and it will update your credit score once per month.

How do you improve your credit score:

Having a healthy credit score can mean the difference between buying the house of your dreams and having to wait those extra years until you’ve improved it. As a general rule, loans are not typically granted to people with credit scores of 650 or less.
Credit scores range from 300 to 900 and approximately 27% of the Canadian population fall between 750 and 799. These individuals are only at a 2% risk of defaulting a payment or claiming bankruptcy. Therefore, if you have a credit score within this range, you are at a higher chance of receiving a loan or a mortgage.

However, if you’re below 750, there are ways you can improve your score fairly quickly.

1. Pay your bills when they are due
I know this may seem simple but you would be surprised at how many people forget to pay a bill or default it because they don’t think the credit bureau will find out. This is incorrect. If you pay your bills on time and in full, your credit score will quickly increase.
2. Have multiple kinds of credit
I recommend having a credit card and a line of credit. The more credit you have available to you, but that remains unused, increases your credit score.
3. Pay things off in full and keep a low balance
There are a lot of low interest credit cards out there that are made for people who consistently keep a balance. But, if you make a purchase on your credit card and then pay it off before the interest hits, your score will go up much quicker.
4. Build credit in general
You’d be surprised to know how many people don’t have credit. They’ve never had a credit card, a cell phone in their name, etc. This can be just as hindering as having bad credit because companies have no track record to go off of. So even if it’s something small, like a cell phone, start somewhere and fast!

Follow these best practices

These are some very quick and easy ways that you can easily build your credit. If you use these best practices, you’ll be surprised at how quickly your credit score improves. And you’ll be that much closer to moving into your dream home.

3 May

Let’s Clear Up Some Of These Headlines In The Housing Market

General

Posted by: Roberto Pelaccia

In today’s market, there are a lot of headlines catching people’s eyes. But, because there are so many, it’s difficult to truly understand them and how they will impact your life and your family.

To help break through some of the noise, here are some of the key highlights that you should pay attention to:

The Bank of Canada has decided to keep the overnight lending rate at 1.25% interested rate.

For some time, there’s been a lot of talk about when these rates are going to go up.

Governor Stephen Poloz     Governor Stephen Poloz recently stated:

“The economic progress we have seen makes us more confident that higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed. We will continue to watch how households and the entire economy are reacting to higher interest rates. And we will be cautious in making future adjustments to monetary policy, guided by incoming data.”

This statement is a strong sign that caution is needed when looking at when to raise interest rates and by how much. In my professional opinion, I don’t see rates going up again until January 2019, which is 12-months after their last raise. I believe this because, 2018 is a transition year due to a new lending policy, changes to the US trade policy, and government regulations causing the housing market to slow, and the economic fallout is still to be seen and understood.

This news should provide some relief to homeowners and potential buyers because it appears that the interest rates are not rising as quickly as many other headlines have been suggesting.

Keep in mind that pressures are real and rates will go up.

Canada had some strong economic growth in 2017 with a 3.1% increase in GDP. This demonstrates that we finally got over the two-year oil price slump. In fact, Ontario is expected to have a 2% GDP growth rate this year and nationally, we are expected to see a growth reach of 2.2%. Growth domestic product (GDP) is the total value of the goods we produce in our country, and it is the best way to measure economic strength. For the majority of this decade the Bank of Canada was striving to have GDP at or above 2% growth, and now they have reached that target.

Big banks just recently increased their rates, but why?

The stress test for insured mortgages is the average of the five major banks five year posted rates. That benchmark is about to get higher. Canadian Bond rates have seen a surge in the last two weeks creating opportunity for larger banks to increase their five-year fixed posted mortgage rates.

This wouldn’t warrant such a large increase though, and especially just after the Bank of Canada announced they are holding rates and are cautious to raise them.

What a lot of people do not realize is that it is estimated that up to 47% of mortgages are coming up for renewal this year. The weather just got warm and the housing market is about to start moving, and most indications show a slower real estate season this spring.

Mortgage rules are tougher for re-financers, and new house listings are down 39% from March 2017, which is proof of new mortgage origination is shrinking.

If Banks are not going to make as much money on new mortgages then it appears that the banks may have found a new way to increase mortgage revenue this year – by increasing profit margins on upcoming renewals.

So having said that, if you are getting renewal notices consider shopping around, and here is an option that may rewind the clocks a couple years as far rates are concerned:

We can try to qualify you for an Insured Transfer where you can take advantage of rates like Prime-1.00%= 2.45% for five-year variable rate mortgage – based on the loan to value. Insured refers to if your mortgage was originally default insured through CMHC or one of their two other counter-parts. There is a difference to being insurable helps lenders determine how low rate you get. This is also tied to the total loan to value of property, and the total value of the property (nothing worth more than $1,000,000 would qualify).

Need to consolidate some other debts?

We can find you a home equity line of credit to go behind your new low rate variable. Insured fixed rates are ranging from 3.24%-3.39% for the five-year fixed.

Focusing on your own household internal economy is key to your financial success. Strategies like this can save you thousands of dollars in interest charges. You might even notice a decrease in your overall payment.

With the proper planning you can free up some money to put toward your kid’s activities, their education fund, or traveling somewhere together.