For those of you who are contemplating purchasing your first home, we will take the time to explain all the steps to you in order that your home purchase be stress-free. We will provide you with a 120 day pre-approval that will lock in a guaranteed rate up front. By the way, if the rates go lower, your rate will go down as well.

We look forward to hearing from you soon.

However, I would caution you making this your number one priority over any other financial strategy of building your personal net worth over the road to your retirement years. You may first wish to consult with a financial expert regarding the pros and cons of sticking solely with your plan of paying off your mortgage faster with all your available financial resources, versus a more systematic approach to your financial well-being that also includes investing regularly in RRSP’s, RESP’s, and contributing to Tax Free Savings Accounts (TFSA’s).

First off, an RRSP contribution will provide a tax break far exceeding any interest savings from paying down your mortgage in any given year, as long as you are making sufficient income that reduces the total taxes payable and that you have the RRSP contribution room to do so. Contributing to a TFSA will also provide for tax-free income in your retirement years that may be very beneficial to you.

You need expert advise from trusted, knowledgeable people that will not only listen to your financial goals in life, but will also provide you with the necessary framework to accomplish them. I firmly believe that every situation is unique out there. How quickly you should pay off your mortgage and how much you can afford to invest with on a regular basis is obviously different from everyone else. Perhaps the ability to do all three would be a great plan and strategy set up by your trusted financial expert (ie- investing in RRSP’s, TFSA’s, and paying off your mortgage faster too).

If this scenario interests you, or you would like more information on what financial plan would work best for you, we would be more than pleased to refer you to one of the financial experts over at the Canada Loyal Financial office located at 309 Banks Rd. in Kelowna. They take their client relationships to the next level, and are dedicated to keeping all their clients informed and educated with all the products and services available to them. I look forward to talking with you soon to discuss mortgage strategies that best fits your needs and introducing you to one of the many financial experts at Canada Loyal Financial for a complete financial review and plan. By the way, our advice is free and there is no obligation by you at all. You can reach me (Ed) at 250-808-9000 to discuss further.

In a report in yesterday’s Globe And Mail, Ed Clark, the chief executive officer of Toronto-Dominion Bank, said the federal government should reduce the amortization of CMHC insured mortgages from 30 years to 25 years.

Apparently, we Canadians need to curtail our spending habits and the best way to fix this problem is for the banks to keep reducing the amortization which simply is the number of years it would take to pay your home off in full. Let’s take a peek at what that might mean for you. Purchasing a home for $360,000 with a 5% downpayment and using a 5 year fixed term rate of 3.39% and a 30 year amortization, the mortgage amount would be $352,089 (CMHC insurance included). The monthly payment would be $1,554.88 (principal and interest only). Assuming annual property taxes of $2,400 and  35% GDS (Gross Debt Servicing  is the total mortgage payment including property taxes and $50 for a heat calculation, divided by your gross income) the income required would be $61,882. Those with an excellent credit rating may be considered using  44% GDS/TDS (Total Debt Servicing is your mortgage payment plus other debts) which would reduce the amount of income required to $49,224.

If the amortization were to be reduced to 25 years and the monthly payment kept the same at $1,554.88, the mortgage amount would be reduced to $315,083 which  is $37,006 less than with a 30 year amortization. That means  you would qualify for a less expensive house if you were under a debt servicing restraint or the income needed to qualify would be higher ($68,142 at 35% GDS and $54,204 at 44% GDS/TDS).

But is this going to solve all our problems of climbing out of debt here in Canada? I think not. Perhaps the big banks should consider the logic of approving folks for a home equity line of credit (HELOC) which has NO amortization at all. You simply pay interest only and these rates are in the range of Prime plus 0.50% to Prime plus 1.0%.  The debt load is most likely never reduced as once you get accustomed to an interest only payment, it is often difficult to discipline yourself to actually pay down any principal on a regular basis. So why don’t the feds start with the HELOC type product instead by at least encouraging (forcing is a bad word) the banks to consider a repayment of HELOC’s. I’m not a big fan of this product simply because a variable rate product is cheaper (currently at Prime) and my clients really do want to see some light at the end of the tunnel as to when their mortgage would be paid off.

Lastly, what about credit card debt? I hear from so many of my clients that their credit card limit has been increased by literally thousands of dollars and how tempting and easy it is to use them. Why don’t the banks start here to reduce our appetite for spending? The big banks should simply stop increasing them WITHOUT the cardholder’s consent.

I truly believe that home ownership is a great thing. Whether it’s a modular home, condo, or a single family dwelling, it’s still the place we take sanction in and call our “home”. I trust the banks will take a hard look before they reduce the amortization any further and look at perhaps all the other “opportunities” within their grasp. Just my opinion. By the way, only 7 more shopping days left until Christmas!!!

So let’s say the cost of your new home is $400,000. You will need 5% (or $20,000) plus provide evidence of another 1.5% (or $6,000) for a total of $26,000. If you are exempt from paying the Property Transfer Tax, your closing costs will be much lower (perhaps $1,500 to $2,000), but the lender still needs you to show them the  1.5% (or $6,000). What if you are short funds for closing costs? We may have a solution for you.

One of our lenders will provide a cash back (paid on the closing date) which will satisfy both the lender and insurer the requirement of having closing costs available. On a $380,000 mortgage (after 5% downpayment) plus CMHC fees of $11,210, the cash back to you is $6,259.36 which is more than the closing costs required. Better yet, if you are exempt from having to pay the Property Transfer Tax, you will have funds left over for perhaps some new appliances, minor renovations, etc. The interest rate for a 5 year fixed term on this mortgage is slightly higher (3.89% if closed within 30 days and 3.99% if closed within 120 days) when compared to the lowest rates with some other lenders but the others are not providing you the extra funds needed at closing with their mortgage product. This is an option to consider if it fits your needs.

If you would like more information on this cash back option, please give us a call today to discuss further. We’re here to help you every step of the way.

A HELOC (Home Equity Line Of Credit) is a form of revolving credit in which your home serves as collateral. With a home equity line, you will be approved for a specific amount of credit. The maximum limit is determined by your debt servicing ability and the appraised value of your home (maximum 80% loan to value). As an example, if your home was appraised for $400,000 then the maximum limit that can be approved would be $320,000 (assuming of course that debt servicing was within the lender’s guidelines). You are required to pay interest only monthly payments as there is no obligation to pay down any principal.

In both cases you have pledged your home as security and in the event of any serious delinquency, the lender could exercise their right to foreclose. I’ve had clients often mention that they do not have a mortgage on their residence (they consider themselves “mortgage free”), but quickly add that they have a HELOC instead. Their HELOC may have a current balance of $300,000 and has been at that balance for years paying only the required monthly interest. Most clients find it difficult to pay down any principal as there is always unexpected expenses throughout the year, never mind occasional interruptions in their income.

One disadvantage with a HELOC is that the interest rate that the lenders charge is normally higher than a VRM (variable rate mortgage). This difference could be as high as 1% which is quite substantial in my opinion. Yes, a HELOC is open and there is no penalty if you were to sell your residence and pay off your loan completely. However, most clients do not intend to sell their home anytime soon, so the extra interest that is paid is hard to justify. Secondly, it may be difficult with your lender to lock in the majority of your HELOC to a fixed/variable rate product to secure lower rates and still keeping a portion available as a HELOC. So what do we suggest?

BOTH! We have lenders that will allow you the flexibility of a re-advanceable mortgage that includes a line of credit product along with your choice of fixed/variable rate products that can work well with your monthly budget requirements. Save on interest, have available cash when you need it, and reduce your principal all at the same time. Call me today for more details.

At time of application, lenders require you to debt service your mortgage using the income you currently earn. What you earned in your previous job last week no longer matters to them. Even if you are approved, the lender will require you to pay for a new appraisal and legal fees all over again (even if you took your original mortgage with them just six months earlier).

Also, is your home still worth what you believe it to be? Hopefully it is, but today we are seeing evidence of slightly lower valuations that reduces the amount of mortgage clients are applying for.

How can one avoid this unpleaseant situation in the future yet have available funds in times of a crisis? Have you ever heard of a “hybrid” re-advanceable mortgage? This type of mortgage allows you the opportunity to lock in a good portion of your mortgage at a low fixed rate yet have available funds set aside, normally a line of credit, that you only pay interest on when you use it. This is much handier (and cheaper) than building up high interest credit card debt. The interest-only payment requirement can be very manageable, especially during difficult financial times. Or, feel free to lock your line of credit at deep discounted fixed or variable rates for even lower rates. No need to apply as you are in control, not the lender.

There are several lenders offering these types of products and picking the right one is definitely very important, not only for choosing the best rates, but for the features they provide. No more worries about accessing your home equity ever again!

If this type of mortgage product interests you, please give me a call to discuss further.

First of all, I am proud to announce a new addition to our team at The Mortgage Centre – BC Direct Mortgages.  My son, Chris Kolisnyk, recently graduated from UBC Okanagan with a Bachelor of Management degree and has also passed his mortgage broker’s license along with becoming an Accredited Mortgage Professional.  Chris will work along side of me and will learn all the ‘ropes” of the mortgage business by being involved with every one of our deals going forward.  As those of you who already know us, our Mortgage Centre franchise is co-owned between me and my daughter Shannon Brolund.  We have worked together in this business now for a decade!

Our father/daughter/son mortgage broker team is considered unique in the mortgage broker industry.  This ensures the best quality of service for you no matter what your mortgage situation is, as all three of us work on every file together.  We discuss various options and the best mortgage for you, while being available for you anytime (evenings and weekends included!).

Enjoy the warm September weather this weekend!

Ed

If you are thinking about purchasing soon or would like to discuss the possibilities of refinancing to reduce interest costs and increase your cash flow, I offer you my 30 plus years of mortgage lending background to a stress-free approval process. I can be reached at 250-762-2070 (Kelowna and area) or toll free at 1-888-877-3535. I look forward to talking with you soon and I wish you all a very Merry Christmas and a Happy New Year!

A big topic of discussion with many of our existing and new clients has been whether or not to choose a fixed rate product or a variable rate one. This is not an easy decision to make as one needs to address not only their own personal situation but their fortitude to accept further future rate increases (if and when they do occur). A number of financial institutions are now offering a 5 year fixed rate of 3.89%, and the odd one at 3.64% with some conditions. However, even with today’s increase, the prime lending rate will now be at just 3.0% and we do have lenders offering a rate of Prime minus 0.65% which makes this rate at 2.35%. That is still more than one full percentage point from locking in for the next 5 years.

So, if you are of the belief that rates should stay relatively low for the next while and you can withstand the possibility of some further rate hikes, then choosing a variable rate product may well suit you. 

If you are currently in an interest-only product you may well want to consider your alternatives, as most lenders charge a rate of Prime plus 1.0%. So, no matter what the prime lending rate does, you are always paying 1.65% more than the variable rate option. That works out to be $1,650 of savings per year per $100,000 borrowed! Call me for more details and I’ll show you how easy this is to do.