Mortgage Q & A

[tpurcell4]

Hello Everyone,

In order to better serve Beyond members and answer mortgage related questions, this thread is to be dedicated to answer all non rate related queries. For current rates please check out the Mortgage Rates (http://forums.beyond.ca/st/347941/mortgage-rates/) thread.

It would be preferable to keep posts clear of the "bank vs. broker" wars.

So first question to answer so that it does not come up again.
Q:How do you determine whether to use a broker or a banker?

A: Interview a banker and broker, or two or three, (just be upfront with them and let them know what you are doing) and then pick the one that you feel you will have the best experience with. You are trusting someone with a lot of personal information and one of the, if not the biggest transaction you will make in your life, and a good banker or broker will be there from day one until you have paid off your mortgage and your kids are looking to purchase their first home, so you have to both like and trust them. There are good and bad examples on both sides.

Other questions maybe:
Q: What are the first time home buyer privileges?
A: Home Buyers Plan (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html) - Access up to $25,000 from RRSP's for down payment tax free. Must repay over 15 years, plus first time buyer tax credit. First Time Buyers Tax Credit (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/369/menu-eng.html) - Where you can claim $5,000 from your first home purchase against your income - which can net up to $750 in tax savings that year you purchase.

Please, post your questions below!

[Canucks3322]

Closing costs on $250,000 townhouse? Roughly how much should I expect?

[kenny]

Sort of rate related, but not directly :)

How much can brokers buy down the rates (ie. Do the banks cap how much they can buy it down)? I've heard of a point system that some brokers have with certain FIs, does this exist? If so, do they use these points to buy down rates?

[cidley69]

What percentage downpayment is required to avoid CMHC insurance fees?

How much would CMHC fees cost ($$ monthly added to mortgage payment, and total over life of mortgage) for a $450K house?

[cidley69]

The first time home buyers plan that lets you borrow from RRSPs resets after 5 years so you can do it again.

Is the same true for the first time buyers tax credit?

[cidley69]

We are considering buying in Redwood Meadows.

Will there be any issues securing a mortgage on leased land?

[tpurcell4]

Originally posted by Canucks3322
Closing costs on $250,000 townhouse? Roughly how much should I expect?

If you are purchasing the townhouse, in Alberta expect about 1% or $2,500, but most lawyers will be able to do this for less than $1,500 in my experience.

[tpurcell4]

Originally posted by kenny
Sort of rate related, but not directly :)

How much can brokers buy down the rates (ie. Do the banks cap how much they can buy it down)? I've heard of a point system that some brokers have with certain FIs, does this exist? If so, do they use these points to buy down rates?

That is an interesting questions. Some lenders have a points system in place where the broker build's points by selling higher rate mortgage to some clients in order to buy down others. This can be looked at as very unethical, but there are brokers out there that do this.

As brokers we have at our discretion to buy down a mortgage rate in order to remain competitive, and we can technically use our entire commission to do so.

In some provinces (I believe Quebec) this practice has either been stopped, or in the process of being stopped.

So, usually the decision to buy down a rate is used as a way to remain competitive if our lenders are not willing to be competitive, but we have to determine whether it makes sense. If it will use our entire commission, then we may decide not to be competitive and let someone else work for free. Or you may see a broker in this circumstance say they will buy it down, but charge a fee, which will ultimately, net the client the same amount of charges over the life of the mortgage.

There are some lenders offering other points models that do not require selling higher rates, but they do not allow as much in respect to buying down some rates.

I hope this answers your questions.

If that makes sense.

[tpurcell4]

Originally posted by cidley69
What percentage downpayment is required to avoid CMHC insurance fees?

How much would CMHC fees cost ($$ monthly added to mortgage payment, and total over life of mortgage) for a $450K house?

To avoid for a typical borrower (non - stated income borrower, and most rental properties depending on the lender) is 20%. If you cannot verify your income and are self-employed through our stated income programs, some lenders will continue to charge the premium up to 35% down as it is riskier (but not all), same with some lenders with respect to rental properties, or they will charge a premium on the interest rate (example: Best rate with a lender is 3.19%, for a rental they will charge 3.39%-3.44%), but they will not charge the CMHC premium.

The Insurance premium is on a sliding scale (based on 25 year Amortization):
From 5.00% - 9.99% the premium would be 2.75%
From 10.00%-14.99% the premium would be 2.00%
From 15.00% to 19.99% the premium would be 1.75%

If you went with a 30 year amortization over the 25 year the premiums increase by 0.20%.

So for a $450,000 purchase with 5% down and a 25 year amortization the mortgage would be $427,500 which the CMHC premium is calculated on, which would be $11,756.25 (2.75%).

This is a one time premium added on to the mortgage, which is then paid off over the amortization of the mortgage.

If more money is requested through a refinance, there would be a top up premium charged on the additional money being requested if the equity in the property were to drop below 20%.

[nzwasp]

Do mortgage brokers look at the scenario realistically when someone is looking at buying a house for instance the following scenario:

@ 5% rate the mortgage on a house we are looking at building would be around $3800 a month.

My wife makes approx 6500$ a month but I make $3800 a month.

If my wife lost her job, we would not be able to live, and would be just barely covering the mortgage payment.

Our current broker says we can afford 1.1 million dollar house but if we can afford it together should we?

2nd question:

What do you see rates being in a years time? e.g 5 year fixed rate.

[tpurcell4]

Originally posted by cidley69
The first time home buyers plan that lets you borrow from RRSPs resets after 5 years so you can do it again.

Is the same true for the first time buyers tax credit?

Video on Home Buyers Tax Credit (http://www.cra-arc.gc.ca/nwsrm/vdcsts/2012/menu-eng.html?clp=ndvdls/hmbyrs-eng)

Short answer, yes. It also applies to persons with disabilities. If you watch the short video on the link provided it answers the question about mid way.

[tpurcell4]

Originally posted by cidley69
We are considering buying in Redwood Meadows.

Will there be any issues securing a mortgage on leased land?

Short answer is yes. Depending on how long of a term is left of the lease, you may not be able to get financing at all.

There are a few horror stories right now out of Redwood Meadows and other leased land areas, where the lease comes up for renewal and they ask for an additional $50,000 or more to renew the agreement.

One story I heard was with a cabin on the Okanagan, where the lease came up, the lessee had done a lot of improvements to the cabin (plumbing, additions, etc) and they wanted to charge in excess of $100,000 to renew the lease.

The lessee burned the buildings down and said have the land back.

I would be very careful in this situation. If there is a long term remaining on the lease, then you may consider it, and so would some lenders, if not, the lender will not touch it, because you may get hit with a huge bill in a few years.

I would definitely run this by your real estate professional though.

[tpurcell4]

Originally posted by nzwasp
Do mortgage brokers look at the scenario realistically when someone is looking at buying a house for instance the following scenario:

@ 5% rate the mortgage on a house we are looking at building would be around $3800 a month.

My wife makes approx 6500$ a month but I make $3800 a month.

If my wife lost her job, we would not be able to live, and would be just barely covering the mortgage payment.

Our current broker says we can afford 1.1 million dollar house but if we can afford it together should we?

2nd question:

What do you see rates being in a years time? e.g 5 year fixed rate.

For your first question:
- If you can qualify together now, then that is the information they have to base your approval on.
- But you as the borrower need to be comfortable with making the payments, and it is a very good idea to consider what would happen should you lose one of your incomes.
- Even though you may be qualified to purchase up to $1.1M, I would recommend the two of you sit down and work out a budget, and factor into your savings section, should one of you lose your jobs for a period of time, how much would you need to get by until you could replace the income.
- Once you have your budget together, then you can determine where you want your monthly payments, then present that to your broker and have them work out what the mortgage amount would be to stay within that budget.

For your second question:
I hate predicting rates over the short term, but from what I hear they will be going up, likely by half a percent over the next year, but we are not expecting anything major.

Within 5 years, we will likely see them go back to what is typically the average, so between 5-6% for a 5 year fixed. Maybe a bit higher, but don't quote me on that.

If you are concerned with what might happen to rates over the next few years, the 10 year rate that is available right now at 3.99% is a great option!

[msommers]

For someone who is self-employed, is the minimum to qualify for a mortgage typically 2 years worth of invoices? If yes, would the only way to obtain a mortgage working for less than 2 years self-employed would be to have a co-signer?

[Canucks3322]

Originally posted by tpurcell4


If you are purchasing the townhouse, in Alberta expect about 1% or $2,500, but most lawyers will be able to do this for less than $1,500 in my experience.

Wow...interesting, I am actually torn between purchasing a townhouse around $250,000 or a house for $300,000...closing costs could be a big factor eh?

[Canucks3322]

Originally posted by tpurcell4


The Insurance premium is on a sliding scale (based on 25 year Amortization):
From 5.00% - 9.99% the premium would be 2.75%
From 10.00%-14.99% the premium would be 2.00%
From 15.00% to 19.99% the premium would be 1.75%

If you went with a 30 year amortization over the 25 year the premiums increase by 0.20%.

.

Wow did not know this either...awesome thread! Thanks!

[tpurcell4]

Originally posted by msommers
For someone who is self-employed, is the minimum to qualify for a mortgage typically 2 years worth of invoices? If yes, would the only way to obtain a mortgage working for less than 2 years self-employed would be to have a co-signer?

Yes, for a typical mortgage we would require 2 years worth of Notice of Assessment to verify what you have reported to revenue Canada.

But, there are still stated income programs, where with 10% down, and verification that you are self employed, and have experience in the field in which you are self employed, you can state your income to what is average for the industry. There is also a higher CMHC premium in order to go this route, and some lenders also add a premium to the interest rate as it is a riskier product.

[tpurcell4]

Originally posted by Canucks3322


Wow...interesting, I am actually torn between purchasing a townhouse around $250,000 or a house for $300,000...closing costs could be a big factor eh?

For most properties there are variable cost associated with land titles registration, but I haven't seen too many lawyers come in a lot higher than $1,500, plus the guy we use is quite reasonable and makes house calls evenings and Saturday's.

[tpurcell4]

Originally posted by Canucks3322


Wow did not know this either...awesome thread! Thanks!

You're welcome. I may have to just set a time of day to answer questions I think though.

[-=MJ=-]

In regards to insurance (non CHMC).

I've visited a few banks, and TD namely told me they would provide optional insurance that would cover my mortgage payments for extended periods of disability or death. BMO offered it to me and Royal didn't even mention it.

Can banks force you to take out insurance on your mortgage, I thought it was optional.

[Masked Bandit]

I'm too lazy to look it up so I'll just ask the expert. I've got a year left on my prime minus .6% variable deal. I've always used variable products in the past and I see no reason to change at this point. What's the best variable deal going these days?

[tpurcell4]

Originally posted by Masked Bandit
I'm too lazy to look it up so I'll just ask the expert. I've got a year left on my prime minus .6% variable deal. I've always used variable products in the past and I see no reason to change at this point. What's the best variable deal going these days?

2.75% on a 30 day quick close and 2.80% for a 90 day rate period :)

Right now, there are not too many people going for the variable because the spread between it and the fixed is not that big, one increase in prime will eliminate the spread completely over even the 5 year fixed right now.

[Masked Bandit]

Originally posted by tpurcell4


2.75% on a 30 day quick close and 2.80% for a 90 day rate period :)

Right now, there are not too many people going for the variable because the spread between it and the fixed is not that big, one increase in prime will eliminate the spread completely over even the 5 year fixed right now.

Booooo!

Oh well, we'll see what things look like next spring. Thanks for the quick answer!

[holden]

Originally posted by tpurcell4
Good bye 2.99% 4 year. I think the last of them extinguished last night at midnight.

But hey, still some great rates kicking around for now:
3 year fixed: 2.79% - 60 day quick close
5 year fixed: 3.14% - 30 day quick close
5 year fixed: 3.19% - 120 rate hold, pre-approvals permitted
10 year fixed: 3.84% - 120 hold, no pre-approvals
10 year fixed: 3.99%: - 120 day rate hold, pre-approvals permitted
OAC, some conditions may apply, rates subject to change without notice


Oh, and for all those professional engineers (P-eng's) PM me for special programs tailored to you!

That post is from the other thread, but what is the difference between the last two rates. I mean I know what a pre-approval is, but how to you get a mortgage without one?

[GreyFox]

Just bought a duplex. Originally was going to build the garage through the builder because that way everything would be integrated into one payment (mortgage) and we didn't have to deal with a ton of seperate people, that alone would be worth the bit extra that the builder charges.

Found out that it's not really a little bit more to do it through the builder, but rather about 1/3 of the total cost EXTRA. Scrapped it through the builder. The builders sales guy hinted towards doing this, and the seperate garage builder didn't say it's impossible but:

Is it possible to combine two different amounts (purchase of the house itself, purchase of the garage through a seperate company) into the mortgage?

Basically I don't want two seperate payments with different payment terms and rates etc.. etc... I want everything to go under my mortgage. Doable?

[tpurcell4]

Originally posted by holden


That post is from the other thread, but what is the difference between the last two rates. I mean I know what a pre-approval is, but how to you get a mortgage without one?

The 3.84% is only available to live deals, so refinances, switchs, or purchases with accepted offers.

[tpurcell4]

Originally posted by GreyFox
Just bought a duplex. Originally was going to build the garage through the builder because that way everything would be integrated into one payment (mortgage) and we didn't have to deal with a ton of seperate people, that alone would be worth the bit extra that the builder charges.

Found out that it's not really a little bit more to do it through the builder, but rather about 1/3 of the total cost EXTRA. Scrapped it through the builder. The builders sales guy hinted towards doing this, and the seperate garage builder didn't say it's impossible but:

Is it possible to combine two different amounts (purchase of the house itself, purchase of the garage through a seperate company) into the mortgage?

Basically I don't want two seperate payments with different payment terms and rates etc.. etc... I want everything to go under my mortgage. Doable?

What we would do hear is a purchase plus improvements. You will need a quote to get the garage built through a contractor or garage builder. You will need to cover the cost to get the garage built, then once it is at 100% complete the lender will release the funds to reimburse the cost of the build (to your loan to value, so up to 95% loan to value or 5% down). A lot of lenders will put a cap on how much they will consider for something of this nature though.

But at the end of the day your garage will be included in your mortgage.

[GreyFox]

Originally posted by tpurcell4


What we would do hear is a purchase plus improvements. You will need a quote to get the garage built through a contractor or garage builder. You will need to cover the cost to get the garage built, then once it is at 100% complete the lender will release the funds to reimburse the cost of the build (to your loan to value, so up to 95% loan to value or 5% down). A lot of lenders will put a cap on how much they will consider for something of this nature though.

But at the end of the day your garage will be included in your mortgage.

Does this have to all be done BEFORE we take possession? Or is this something that you can do a few months after you move in?

Thanks for all your help...been reading a few of your threads over the past little while and they are all very informative!!

[tpurcell4]

Originally posted by GreyFox


Does this have to all be done BEFORE we take possession? Or is this something that you can do a few months after you move in?

Thanks for all your help...been reading a few of your threads over the past little while and they are all very informative!!

You can structure the loan upfront for the purchase plus improvements, then wait a short period of time to build, they just won't release the additional funds until the build is complete. Or you could do a refinance plus improvements down the road if you think it is going to be a few years, but you may end up having to pay a penalty to do so. Because I am in the same boat right now of wanting to do the garage and develop my basement, but I would like to roll it into my mortgage once I am done, which means I will have to wait another 3.5 years to avoid penalties.

Cheers,

Todd

[tpurcell4]

Industry Update

Mortgage insurers and lenders are starting to tighten up guidelines on qualifying, primarily for 5% down programs, stated income programs, and more.

Also, the Office of the Superintendent of Financial Institutions is Drafting further guidelines for banks and lenders for doing their due diligence in verifying documentation and information provided on applications:
OSFI Draft Guideline B-20 (http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/guidelines/sound/guidelines/b20_dft_e.pdf)

What does this mean?
If you have recently gotten into a new mortgage and thought the lenders were asking for a lot of information, they may start asking for more.

Due to these changes, we have been noticing longer turnaround times from lenders, primarily on 5% down payment programs, and more being declined.

So to be safe at this time, if you are putting 5% down, they can still be done, but there is little wiggle room for any kind of exceptions (ie. new to job, borrowed or gifted down payment, recently established credit, tight debt servicing ratios, etc).

If you have any questions regarding the above, please post below and ask, as I know there is a bit of industry jargon in the wording.

Cheers,

Todd Purcell