Many self employed people wonder how much income is required to qualify for a mortgage.
Whether you are a new business owner or have been a self-employed borrower for many years, I would like to introduce the stated income program which you can now access to obtain mortgage financing.
Here’s what you need to know…
Usually, if a borrower with good credit approaches a big bank, the bank representative will ask for their T1 Generals and Notice of Assessments for the last two years and proceed to use a two-year average of their claimed income (the income they paid taxes on) to calculate income required to qualify. Unfortunately, because many borrowers write off expenses involved in running their business, their claimed income is usually not enough to qualify for the real estate of their dreams.
Thankfully, if self-employed borrowers choose to work with a very reputable mortgage broker, they can apply under both the stated income program and the “Expanded BFS (Business For Self Program)” also insured by Genworth and Canada Mortgage and Housing Corporation (mortgage default insurers). They will have to pay a type of default insurance but will still be offered extremely competitive interest rates.
For proof of income, borrowers will have to provide their reasonable income amount on an income declaration which would be based on their professional designation and skillset. They will also have to demonstrate credit worthiness by having a solid credit history and credit score.
What you will need for this program:
Please note this program is only eligible on owner-occupied homes meaning this must be your principal place of residence.
For all of your mortgage questions, please email me email@example.com or call 647-773-4849.
Sarah A. Colucci
Senior Mortgage Agent
Mortgage Edge, Broker 10680
Debt relief can be overwhelmingly confusing for borrowers in all financial situations.
Many borrowers have lingering debt problems… in fact, if you have a standard 25-year bank mortgage loan this can be considered, in many respects, a debt problem especially if you end up paying substantially more interest than you have to.
With the right advice from experts, borrowers can definitely choose one of many well proven and effective solutions to help them finally resolve their ongoing debt problems.
Finally, they can have more deserved reign over their hard earned money instead of designating it all to pesky compounding interest.
One particular debt problem that comes up over and over again for many borrowers is credit card debt. Canadians tend to have a lot of credit card debt and they often struggle to get out of it once the balances reach the maximum credit limit.
Here are three common debt solutions borrowers pursue:
a) refinance the first mortgage to consolidate debt.
b) get a second mortgage loan like a line of credit or private mortgage loan or c) apply for a debt consolidation loan such as arranging a plan with the assistance of a third-party debt consolidation company.
To get out of credit card debt the quickest and cheapest way possible, borrowers have to follow some sort of plan that will allow them to pay their loan down much faster, with the least amount of interest involved and most importantly, in less time.
Let's look at the three most popular debt consolidation options borrowers can pursue:
Debt Consolidation Through Finance Companies
Consolidation companies will lend money to consolidate loans. The loans are usually unsecured meaning they are not registered against a property.
Their rates can be higher than secured mortgages and the terms can be very short (i.e 4 years only). As a result, scheduled monthly payments can be higher. Borrowers usually don't choose this option first since the payments can be higher on a monthly basis and therefore, not sustainable even over a shorter term.
A Second Mortgage or Line of Credit
A second mortgage can be a good option, but it depends on the interest rate a borrower receives, any additional fees involved and of course, whether or not they can manage the monthly payment.
Second mortgage loans tend to be offered at higher mortgage rates because they are considered riskier than a first mortgage.
A second mortgage loan can be offered by a financial institution, an alternative lender and a private lender.
A second mortgage offered by financial institutions, like first mortgage loans, usually has privileges built in that allows you to pay more principal faster. If the loan is a line of credit, then it is totally “open” which means it can be paid off at any time without a penalty.
Borrowers tend to fall into the "pay interest-only" trap when they take out a line of credit since, like a credit card, all that is required is a monthly minimum payment. If you don't pay more than just the lower interest payment, you may have a difficult time paying off the original balance.
It is often said that a secured line of credit can become the "credit card of the secured mortgage world."
Private loans: Expect interest rates to be much higher than banks or alternative lenders and to pay lender and broker fees which brings total cost of borrowing much higher.
Sometimes, however, borrowers choose a private mortgage as their best option because :
They can’t refinance their first mortgage because the penalty is too high or they don't qualify for whatever reason.
Pitfalls of Private Mortgages:
Borrowers pay interest-only, which is counterproductive.
Fees involved in a private loan can be very expensive.
UNDER NO CIRCUMSTANCES should a private mortgage be considered a long term debt solution.
Lastly... option three.
Mortgage refinancing will involve breaking the existing first mortgage in order to consolidate all debts. Borrowers will have one monthly payment owed to one lender.
Borrowers may or may not have to pay a penalty. If they are able to stay with the existing lender, they may be able to simply increase the mortgage balance without a penalty.
In the event they cannot stay with the same lender for whatever reason, they will be subjected to a penalty.
Refinancing is often a popular choice mainly because the interest rates are the most favourable of all the debt consolidation options.
Additionally, most lenders allow a prepayment privilege each year of up to 25 percent of the original mortgage balance which can be used either by increasing the regular payments by a certain percentage or making one lump sum payment each year.
This can be advantageous especially when paying debts down. Instead of making that monthly, interest only mortgage payment, make the prepayment to your mortgage at a lower interest rate and your money goes towards reducing principal immediately.
There are other options one can pursue to help with debt consolidation such as transferring balances to promotional offers on credits cards but chances are, if one can’t get out of the current credit card debt they are in, they will have issues with other credit cards once the promotions are over and the rates go back up.
Looking to find the best mortgage rates? "Best" can be very misleading because rates offered to borrowers depend on many factors such as loan to value, employment situation and credit scoring. Contact me today if you have questions about your mortgage or debt consolidation matters!
Have a great weekend!
Sarah A. Colucci
Sr. Mortgage Agent Lic. M14000929
Mortgage Edge, Broker 10680
The Shared Equity Mortgage Provider (SEMP) Fund program helps eligible Canadians such as first-time homebuyers achieve homeownership.
This $100-million lending fund given by the Government of Canada helps “shared equity mortgage providers” (a list of lenders will be released at a later time) offer an alternative homeownership model. The Fund will help attract new lenders to take part in shared equity mortgages and encourage additional housing supply and home sales. The Shared Equity Mortgage Provider Fund will be offered as insured mortgages only and is a 5-year program to be launched on July 31, 2019.
The program will offer eligible home buyer loans from two possible funding flows:
Preconstruction costs to commence new housing projects that provide shared equity mortgages to home purchasers.
2. Shared Equity Mortgages (SEM)
Funding of shared equity mortgages provided by the proponent directly to home purchasers.
How does this program act as a first time home buyer’s incentive?
The minimum down payment that is required is still 5% and borrowers will still need to pass the stress test, however, the Government will loan an additional 5-10% of the purchase price. In turn, the Government will obtain an equity stake in the subject property.
For new builds or new construction, the Government will lend up to 10% of the purchase price. For resale properties, the loan amount will be no more than 5%.
The loan (not grant) will have to be repaid within 25 years although it can be repaid prior to this loan without interest or penalty.
If the property is sold or the mortgage is paid off through refinancing for example, prior to the 25-year mark, the total loan must be repaid in addition to any sale/refinance proceeds that may be owing to the Government. Since they are obtaining a share in ownership, they will be entitled to a share of the property.
For example, if you purchase a property for 360,000, and the Government loans you 5% of the purchase price or $18,000, they will obtain a 5% ownership in your property. If you sell your property down the road for $500,000 for example, you will owe the Government $25,000 which includes the original $18,000.
If you sell at a loss, the Government may have to swallow the costs (this part still to be ironed out).
As more information emerges, we will get a better picture of this plan to help home buyers buy a home and help with housing affordability.
For more information, call (647) 773-4849 or visit www.coluccimortgages.com
There could be thousands of dollars sitting in your tax account.
Some lenders put the money you pay for your taxes with your monthly mortgage payment in an interest-bearing tax account but others don't. Does your lender need to pay your annual property tax on your behalf?
In addition to your mortgage payments, you also have to pay the balance of your tax bill. But, although having your lender pay property taxes for you seems convenient, it can cost you extra money.
Firstly, some lenders charge a yearly tax administration fee for paying your taxes for you. This can cost up to $450. Secondly, because property tax rates rise between 3 and 5 percent each year, your lender will collect an "inflated" payment to accumulate a tax account surplus which acts as a buffer. This money is held in a tax or escrow account.
When taxes rise, instead of renegotiating your monthly mortgage and tax payment, your lender will dip into the tax account and take out the difference to pay your taxes.
Please note, over time, extra money accumulates in this tax account. Sometimes, even thousands of dollars are sitting in there and they won't get credited back to you until you pay off your mortgage.
Alternatively, if you opt to pay your own taxes, the balance in the tax account will be credited to you since the lender is no longer paying your taxes on your behalf.
To maintain the convenience of taxes automatically getting paid and save money, why not set up a payment plan directly with your Town or Municipality? That way you don't pay more an admin fee to your lender and you don't pay more than you have!
Have mortgage questions? Don't hesitate to call (647) 773-4849. I can help you make sound financial decisions in real estate.
Sarah A. Colucci
Sr. Mortgage Agent, Lic. M14000929
Mortgage Edge, Broker 10680
Email in confidence: firstname.lastname@example.org
A mortgage is the most significant financial obligation a borrower will undertake in their lifetime. If we compare the costs associated with loans such as student and car loans, for example; a mortgage loan is not only exponentially higher but also a lot more expensive.
Not many borrowers understand what’s involved in paying a mortgage besides their principal and interest payment and, of course, the mortgage rate they receive. Unfortunately, mortgage terms and conditions are generally poorly understood by a large percentage of mortgage borrowers, which contributes to costly mortgage fees.
In many instances, mortgage terms are not explained in enough detail to borrowers by the professionals who originate or administer them, which leads to confusion.
If you plan to buy a home soon, here are some of the potential fees attached to home loans to watch out for:
Mortgage Insurance or High-Ratio Mortgage Insurance
Many borrowers do not have 20% available to put down towards their purchase price to avoid paying mortgage insurance. According to the Government’s rules, if a borrower does not have a 20% downpayment, their mortgage loan must be insured through CMHC (Canada Mortgage and Housing Corporation) or another insurance corporation such as Genworth or Canada Guaranty Insurance Company. High-ratio mortgage insurance can cost up to 4 percent of the total loan amount and in some cases, 4.5 percent. On a $300,000 mortgage loan, it could cost borrowers $12,000 in insurance fees.
The total loan amount would be registered for $312,000.
High-ratio mortgage insurance does not have to be paid up front, although it can be. Most of the time, borrowers keep the insurance premium attached to the original mortgage amount, and the total loan gets amortized out to 25 years. Unfortunately, because the premium is amortized with the loan, borrowers will pay interest on their insurance premium.
PST (Provincial Sales Tax) on the insurance premium will need to be paid up front and therefore, will get deducted from the mortgage advance on closing.
What other fees do borrowers look consider?
Some lenders will deduct a processing fee or mortgage administration fees from the net advance to the solicitor on closing. Sometimes, this fee can be between 200-350 dollars. We find these fees are applicable for lenders using a third party administration company such as First Canadian Title who acts as the middleman between the lender and the lawyer. First Canadian Title is also a title insurance company and can title insure the property.
If the lender does not use a third-party company such as First Canadian Title, then there won’t be any extra processing or administration fees deducted from the net advance on closing.
Property Taxes: Pay on your own or let the lender pay for you?
Borrowers will often allow the lender to pay their property taxes on their behalf, so they don’t have to worry about it. One less thing to think about, right? Well, not really.
Often, if the lender is collecting property tax money on your behalf, two things will happen.
First, you will most likely have to pay more each month for your taxes so the lender can accumulate an ‘in-house tax account’ for you. To keep up with increasing property taxes each year and not have to keep negotiating your mortgage payment, they will need to collect more than what’s owing to create a buffer. Many people are surprised to learn their lender has thousands of dollars sitting in their tax account.
Secondly, the lender may charge you a yearly administration fee for collecting taxes on your behalf.
Avoid these additional costs and fees by setting up a pre-authorized payment directly with your Municipality.
When setting up a mortgage and signing any associated documentation, ensure the prepayment penalty gets explained to you. If you decide to pay off your mortgage earlier than your contract allows and for more than your prepayment privilege, you will get charged a penalty. Different lenders use different calculation methods, and some are more expensive than others. Ensure you discuss how the penalty gets calculated so you can plan for any associated fees with breaking your mortgage down the road.
As a senior mortgage agent, I can help you sort through the fees to ensure you save money and get the best mortgage product for your situation.
Mortgage Broker or Bank?
There is often a misconception that brokers charge fees that banks don’t. Usually, if a borrower is getting a prime mortgage product and has excellent credit and enough qualifying income, not only is a brokerage fee not applicable, but the interest rates are usually more competitive. Mortgage brokers get paid an origination fee by the lender directly and they do not charge the borrower.
Of course, if a borrower is getting charged a brokerage fee, they should always double check the price and ensure it is just for their situation.
Should you pay off your mortgage earlier than 25 years?
The answer depends on a few factors. Firstly, if you have liquid investments, it would depend on what yield they were earning. If mortgage interest rates are much lower as they are today, it makes sense to keep your money in the bank instead of using it to pay off your mortgage. You could lose thousands of dollars of investment gains.
Secondly, if that is not an option, you can simply use the privileges within your mortgage contract to significantly reduce your amortization period and satisfy your financial goals.
What many borrowers don’t consider is just by changing payment frequency and adding extra money to their payment, their amortization period can shrink dramatically. So for example, if payments are set to monthly mortgage payments, by changing to a weekly or bi-weekly, accelerated payment, can have huge benefits.
Many borrowers are often interested in a line of credit because it's flexible. They appreciate the fact that if they needed to pay it out entirely or make a lump sum payment down the road, they would not be charged a penalty. This is true, however, secured lines of credit usually come with higher mortgage rates.
In reality, and in my experience, most people who have high balances on their line or who are ‘maxed out’, find it difficult to pay them off completely or make extra payments. They end up making monthly payments at a higher interest rate and lose money.
On the other hand, to help with personal finance, I offer closed mortgages that have a pre-payment privilege of up to 20%, and in some cases even 25%, per year. This means that borrowers can pay 20% of their original principal balance without a penalty. On a $500,000 mortgage, that's $100,000 each year without penalty. This approach allows borrowers to make a principal and interest payment while still being afforded the privileges of a "semi-open" credit product. In most cases, this is a sound, long term solution.
Of course in a closed mortgage, a borrower cannot access funds like they would in a line of credit. That's why it's important to set up your credit products with your plans in mind and work with a mortgage broker. I often work with borrowers to segment their credit product to what makes sense.
For example, having a larger closed mortgage portion and a smaller line of credit portion that is manageable while still being able to pay off their mortgage sooner.
In conclusion, the answer is YES you should pay off your mortgage as quickly as you can. Always speak and work with a professional.
Have a mortgage question? PM me on Facebook or call 647-773-4849. Buying a home? Need to consolidate costly credit cards? Call today or visit www.coluccimortgages.com
Sarah A. Colucci
Sr. Mortgage Agent, Lic. M14000929
Mortgage Edge, FSCO Broker #10680
Research shows most mortgage borrowers search for the best interest rate but hardly ever read through the terms of their mortgage contract which can end up costing them more money down the road.
In the last few years prepayment penalties have received a lot of attention.
For example, in 2014, the CBC released an article exposing a penalty a couple had to pay in the amount of $17,000 when they decided to sell their home and move abroad. TD eventually softened the blow but it’s wasn’t until after the couple went public.
A class action law suit was also launched against CIBC in 2011 by Siskinds LLP after a number of borrowers claimed “that CIBC applied terms and conditions to certain mortgage contracts to allow it unfettered discretion for calculation of mortgage prepayment penalties.” Some people were forced to pay over $50,000 in penalties.
Royal Bank was also in the spotlight in 2011 when Brian Hyytiainen went public about his penalty that cost him $13,000. He later appealed the penalty to the RBC ombudsman and Chambers Banking Ombuds Office. According to the article published by the Toronto Star, his request for a reduction of this amount was declined.
If you’ve noticed a pattern of higher penalties amongst big banks, you’re on to something.
Big banks have the highest and most expensive penalties due to their calculation method. In a fixed rate mortgage, which is the most popular type of mortgage borrowers obtain, big banks use the Bank of Canada’s benchmark rate to calculate penalties. These rates are often highly inflated and can give the impression borrowers received a bigger discount off of their interest rate than they really did. In turn, this triggers a larger penalty.
Is it any wonder that big banks make millions, if not billions of dollars from pre-payment penalties? It shouldn’t be. Mortgage contacts are designed to make lenders money and big banks will use every avenue they can to generate a profit.
In conclusion, if borrowers don’t understand what they are reading and most importantly, signing, they won’t be able to protect themselves from bad terms which can be costly.
As an experienced mortgage agent who prides herself on facilitating clients with the right mortgage for their lifestyle, I don’t like to focus on interest rates as much as I do mortgage terms.
I occasionally come across borrowers looking for the best pricing only but the bulk of my clients come to me for advise and the best mortgage which means more than just the interest rate.
If borrowers rate shop they may get the lowest rate but may also be stuck in a punitive mortgage contract, one that has “no frills.” Prepayment privileges, penalty calculations and more may be all skewed to be astronomically more expensive in exchange for a better rate. Not many borrowers want this type of mortgage if it’s explained to them in detail.
To learn more, you can always contact me at (647) 773-4849. I am always willing to either advise on a particular mortgage or even help borrowers read the fine print of their existing mortgage contracts.
The Office of the Superintendent of Financial Institutions has released a mandate to banks to require a 2% buffer against bad loans.
OTTAWA ─ June 4, 2019 ─ Office of the Superintendent of Financial Institutions
Today the Office of the Superintendent of Financial Institutions (OSFI) set the Domestic Stability Buffer at 2.00% of total risk-weighted assets, effective October 31, 2019.
This reflects OSFI’s view that key vulnerabilities to Canada’s Domestic Systemically Important Banks (D-SIBs) remain elevated. The key vulnerabilities include Canadian household indebtedness, asset imbalances and institutional indebtedness. Against this backdrop, a favourable credit environment and stable economic conditions continue to provide a window of opportunity for D-SIBs to increase their capital holdings.
An effective capital regime ensures that banks are holding adequate capital to protect against risks to the financial system, while also encouraging them to use their buffers during times of stress to avoid asset-sales or drastic reductions in lending.
This announcement is consistent with the Financial Stability Board remarks that financial supervisors like OSFI should “consider using the current window of opportunity to build resilience, particularly macroprudential buffers where appropriate.”
Announcing the buffer demonstrates OSFI’s view that increased transparency will support banks’ ability to use this capital buffer in times of stress by increasing understanding of the purpose of the buffer and how it should be used.
" Building Resilience: OSFI Sets Domestic Stability Buffer Level At 2.00% ". 2019. Osfi-Bsif.Gc.Ca. Accessed June 5 2019. http://www.osfi-bsif.gc.ca/Eng/osfi-bsif/med/Pages/dsb201906-nr.aspx.
Q & A with Sarah Colucci
Why do homeowners refinance?
Homeowners often choose to refinance their mortgage for various reasons including consolidating high interest debt, taking out equity in their home, investing in real estate or completing home renovations.
Is refinancing common?
Yes, it is. In fact, as many as one out of three homeowners will refinance their existing mortgage before it has matured.
Is it true that borrowers will have to pay a penalty to refinance?
To refinance, your existing mortgage must be broken or “blended and extended”, which I can also explain.
To break your mortgage early will trigger a prepayment penalty. If you have a variable rate mortgage, usually the penalty amounts to three months worth of mortgage interest. If you currently have a fixed rate mortgage, you will be charged either three months worth of interest OR the Interest Rate Differential, whichever is greater.
Depending on how your current financial institution calculates prepayment penalties, the payment may be reasonable or very expensive. As mortgage brokers, we can help you sort through your prepayment penalty to ensure you understand the numbers calculated by your current mortgage holder.
If I had a lot of credit cards, for example, and wanted to consolidate debt, how could I figure out if I should refinance or not?
That’s a really good question. Because refinancing your mortgage means breaking your mortgage contract in most cases, some people may think it’s too expensive. Once you consider legal fees and appraisal costs plus the penalty, it may seem as though refinancing is not the answer.
However, each case is very different. If your someone who has a few credit cards at 19.999% interest, for example, and a monthly payment that is just interest, consolidating makes sense when you consider how much interest you will pay in just a year. Some people forget that credit cards were designed to keep borrowers in debt forever, and many people, unfortunately, fall into this trap.
Consolidating also can help people recover necessary cash flow each month which can help them “breathe.” Most people live pay cheque to pay cheque so it’s important that my clients are set up to have the additional funds to maintain liquidity in the bank and pursue other, more lucrative investments.
Refinancing at my office is usually part of a bigger strategy for the client. My goal is to help borrowers reduce their total mortgage balance and interest payment every month.
Is it true that big banks like Royal Bank and CIBC, for example, have the most expensive pre-payment penalties?
They can be, yes. Big banks use the Bank of Canada’s posted rates to calculate their penalties. When calculating the interest rate differential which I explained before, this can seem as though the client got a bigger discount off their mortgage rate than they actually did. This, in turn, triggers a larger penalty.
You mentioned “blend and extend” - what does this mean?
Sometimes, if a client can stay with the same financial institution, as in they still qualify with them, I can mitigate a penalty by keeping them with their bank. In this case, they avoid paying a penalty because instead of breaking the mortgage, they just increase the principal amount and blend their old rate with the new rate on the percentage of new money they are asking for.
How can people get in touch with you?
Usually, I am available through social media direct messaging such as Facebook or Instagram and of course email at email@example.com. To speak directly, borrowers can call me at (647) 773-4849.
By: Greg Thomas, Financial Planner
When mortgage maturity approaches, and it's time to renew your mortgage, you will receive a Renewal Agreement in the mail.
The Renewal Agreement is often a very thick document that displays current interest rate offers together with mortgage terms.
Most borrowers do not understand all of the terms and more than 50% of borrowers do not know how to interpret the offers being given in terms of dollars and cents.
One example of this is an experience I recently had with a client who had her original mortgage with CIBC. Her CIBC mortgage was up for renewal and she locked into another five years. She mis-read the renewal agreement completely. What she failed to realize was that her low five-year rate was only an introductory rate for the first six months followed by a much higher interest rate for the rest of the five year term.
This meant that after the first six months she would end up paying almost one percent more than what other prime lenders were offering.
This was a very costly mistake and one that could have been avoided if she understood her mortgage renewal terms.
As always, mortgage renewal and mortgage maturity is an opportunity to seek a better interest rate and negotiate better terms. It's a time to save money.
Please contact me today if you would like to discuss your mortgage renewal.