4 Jul

Properties With A Second Unit

General

Posted by: Jenni MacDonald

Properties with a Second Unit

Have a look through many MLS listings and you will see terms like: “Secondary Suites”, “Basement Apartments”, “Accessory Apartments”, “Granny Flats”, “In-Law Suites”, “Granny Suites” or “Nanny Suites”.    Whether a buyer is looking for a unit for an aging parent to stay nearby or to make some extra money to help make the mortgage payments or cash flow, a Second Unit can be a great solution.

What are Second Units?

Second units are self-contained residential units with a private kitchen, bathroom facilities and sleeping areas within a single family or semi-detached home.

Benefits of Second Units

In addition to increasing the amount of affordable rental accommodation in an area, second units benefit the wider community in a number of other ways. They:

  • provide homeowners with an opportunity to earn additional income to help meet the costs of home ownership
  • support changing demographics by providing more housing options for extended families or elderly parents, or for a live-in caregiver
  • maximize densities and help create income-integrated communities, which support and enhance public transit, local businesses and the local labour markets, as well as make more efficient use of infrastructure
  • create jobs in the construction/renovation industry.

The Canadian Mortgage and Housing Corporation (CMHC) recently announced that in order to facilitate affordable housing choices for Canadians, it would be making some policy revisions on how they consider income derived from secondary suites. Considering the last 4 years have been nothing but tightening of rules, making it harder for Canadians to secure mortgage financing, this news is certainly welcome!

Cautions about Purchasing a Property with a Second Unit

  1. Regardless of where they are located, second units must comply with health, safety and municipal property standards, including but not limited to, the Ontario Building Code, the Fire Code and municipal property standards by-laws.  In addition, a building permit may be required to establish a second unit depending on whether alterations to the house are needed.  As such, buyers considering purchasing a property with a Second Unit or homeowners considering establishing a second unit should contact their municipality prior to doing so.
  2. In many cases, illegally-operated secondary suites also go unreported to insurance providers. If a Secondary Unit is not reported to your insurance provider you run the risk of not being covered in the event of a loss.
  3. In addition, your lawyer will be required to order a work order search since you are technically purchasing a multi-unit residential property. This results in a longer timeline, a few more dollars and, possibly, some setbacks to deal with in order to close on the anticipated closing day.
  4. Be sure to speak to your accountant if you will be receiving rent from the second unit. There are several tax implications for receiving rental income not the least of which is having to claim Capital Gains on the sale of your personal home.
  5. A final word of caution, if one (or both) of the units are currently tenanted, be sure to ask for vacant possession of the unit that you will be living in.  If the tenant in the extra unit is staying, be sure to ask for a copy of the lease to make sure your rights are protected.  If the tenant in the second unit is also leaving, make sure you require vacant possession of that unit as well.  Banks will no longer allow the flexibility of a tenant to “move out in 60 days” in order to qualify for a residential mortgage with 5% down payment.  On closing day, the discovery of a “Rent Adjustment” by your lawyer will immediately cancel your mortgage if the lender was not aware that a tenant would be remaining in any of the units.

So What Does This Mean for You?

If you would like to discuss how much mortgage you qualify for and look at different scenarios of qualifying with a secondary suite rental income, I would love to have an in depth look at your finances and provide you with mortgage options!

25 Apr

The 5 Benefits of CHIP Reverse Mortgages

General

Posted by: Jenni MacDonald

One  product.  Many  benefits.  CHIP Reverse Mortgage by HomEquity Bank.

Designed  to  fit  into  any  financial  plan,  the  CHIP  Reverse  Mortgage  offers  many  benefits and  opportunities  that  make  it the  right  solution  for  so many  older  Canadians  so  they  can  live  the  lifestyle  they’ve  worked  so  hard  for.

1.  Maintain complete ownership of your home.

2.  No  regular  monthly  mortgage  payments if you choose not to.

3.  Tax-free cash

4.  Access to up to 55% of the equity of your home

5.  No medical checks are required.

If  you  would  like to  learn  more,  please  contact  me  at jmacdonald@dominionlending.ca or 613-551-0639.

29 Jan

Breaking Up Is Hard To Do! Do You Need a Spousal Buyout Mortgage?

General

Posted by: Jenni MacDonald

When Breaking Up is Inevitable Consider a Spousal Buyout

Life can hit us hard and it’s hard to move forward.  But, we pull up our boots and take one step at a time.  When couples decide that a divorce (or Breaking up) is inevitable, if a house is involved, the question of whether the house has to be sold arises.

Spousal Buyout

You can apply for a mortgage products called a Spousal Buyout.  This product allows a spouse, who wants to keep a matrimonial home, get a mortgage up to 95% of the value of the property in order to payout an amount owing to the other.  In the past, if both names were already on the deed and mortgage, the maximum one party could pull from the house was 80% of the value as a refinance.

Requirements for a Spousal Buyout Product

The rules for the 95% mortgage product are quite stringent. You will need:

  1. An appraisal.  An appraisal report will already have been obtained in order to determine the Equalization of Assets during a divorce.  Unfortunately, in most cases, the same appraisal is not acceptable to a lender unless it was originally ordered by a third party (such as a Mortgage Broker or lender or lawyer) for the dual purpose of Equalization of Assets and Financing.  Also, an Appraisal Report is acceptable for 90 days (less with some lenders).  If the appraisal was ordered early in the divorce proceedings, another one may be needed by the time the details are settled.  If the value changes over that time, the negotiations between parties usually start again to determine payout amounts.
  2. A signed Separation Agreement written by or signed by a lawyer.
  3. An Agreement of Purchase and Sale between the parties.
  4. Proof of payout amounts.  The proceeds can payout the ex-spouse.  With this product, CMHC will not allow the funds to payout other debts.  Genworth and Canada Guaranty are more flexible in their requirements.  Keeping these facts in mind is important when the negotiations between parties take place.

Including a Mortgage Broker early in the Separation process can help ease you through this horrific experience.

24 Jan

Credit Scores – How do you score?

General

Posted by: Jenni MacDonald

All the recent mortgage changes translates into needing a strong credit score more than ever.  Most Lenders rely on the “Equifax” score.  Equifax calculates a daily “risk” score out of a maximum score of 900.  Using Creditkarma.ca, will access a TransUnion score which is not used by many lenders but is a good way to monitor activity.  Establishing a score of 700 or higher is considered an excellent score and opens the doors to the better interest rates and bank approvals.

PAYMENT HISTORY

This factor determines about a third of your score.  Even a one day late payment can negatively influence your score and shows on your bureau for 6 years.  It’s more important to pay the minimum payment on time than to pay a larger amount late.  Setting up all of your accounts on pre-authorized payments for the minimum amount will ensure that you will never have a late payment.

The MOST important advice I can give is to avoid having anything sent to COLLECTIONS.  No lender will provide a mortgage to someone with an unpaid collection.  Each one decreases your score by about 80 points.  If you are having a dispute with your cell phone or internet provider, pay the bill and then argue about it later!!!

AMOUNT OF CREDIT USED

Amount of usage is another large factor in determining your credit score.  The more of the limit you have used, the lower your score will be.  Keeping your balance under 30% of the total available amount will help your score increase.  If you are in a hurry to improve your score, consider calling your credit companies for a limit increase.  The secret to this trick: DO NOT use the increase !!

OTHER FACTORS

Your Beacon score is also calculated by AGE OF YOUR ACCOUNTS, TYPE OF CREDIT you have and  NUMBER OF ENQUIRIES on your bureau in the last 12 months.  Lenders want to see at least 2 different kinds of credit established for at least 2 years for a total limit of at least $2,500.  A combination of credit cards, loans and lines of credit are desirable.  If you make numerous calls looking for credit from different companies you will lower your score and is a red flag to lenders.  Keep in mind, if you close an account, your score could drop by almost 100 points!!

To have a closer look at your credit situation, make an appointment or apply online at jmacdonald.ca .  Start the year off strong!

5 Dec

CHIP Reverse Mortgages

General

Posted by: Jenni MacDonald

You may have heard about a Reverse Mortgage product called “CHIP”.  There is a lot of misinformation about this great mortgage product because of some reverse mortgage schemes in the United States.

Let me answer some questions about the benefits of the CHIP product offered exclusively through HomEquity Bank.

How much can you get and when can I apply?

Once all owners are over the age of 55, you can apply for a CHIP mortgage.  You must have at least 55% of the value of the property available.  The funds are tax-free!

 

What is a reverse mortgage and how does it work?

A CHIP is a loan secured against the value of your home.  Unlike a traditional Home Equity Line of Credit (HELOC) or a second mortgage, you are not required to make monthly mortgage payments for as long as you live in your home. You always maintain ownership and control of your home.  The mortgage payments can be added back into the mortgage. The full amount of principal and interest is payable when the home is sold or the homeowner(s) die.

 

Can your estate owe more than your home?

A CHIP mortgage cannot seek any further compensation from the borrower – even if the property does not fully cover the full value of the loan upon payout of the mortgage. Basically, when the last homeowner dies (and the reverse mortgage is due), the estate will never be responsible for paying back more than the fair market value of the home. The estate is fully protected – this is not the case for almost any other mortgage loan.

 

Why get a reverse mortgage?

Here are some examples of how clients commonly use it:

  • eliminate debt payments
  • help a child or grandchild with a down payment on a home
  • purchase a new home (right-sizing instead of having to downsize the home)
  • increase cash flow to improve lifestyle (e.g. vacation, new car)
  • pay healthcare costs so you can stay in your home
  • pay for an unexpected expense (e.g. home repairs)
  • save on taxes by taking out a CHIP mortgage at the beginning of your retirement
  • take monthly draws to improve monthly cash flow

For more information on the CHIP Mortgage, please give me a call.

23 Oct

More Mortgage Changes Coming

General

Posted by: Jenni MacDonald

Are you considering purchasing a new home soon?  Or are you refinancing your current property in the next few months?

Change:

As of January 1, 2018, the mortgage rules are changing again to make it more difficult to qualify. Come see me now for a free consultation on your mortgage choices before the changes come into effect!

16 Feb

What Do These Changes Mean to Me? Part 4

General

Posted by: Jenni MacDonald

Credit Scores and Documentation Changes:

In 2008, lenders were required to be more diligent proving a borrower’s ability to make mortgage payments.  Documentation requirements became almost painful.  Clients often lament about the lender wanting everything except their first born.  As consumer debt in Canada continues to increase, the government will continue to change lending rules to protect both the lender and the borrower.  Credit scores are your only real power when it comes to borrowing.  If you aren’t sure how to build your score, please contact me for a free consultation and we can put together a plan to make your credit score solid!

 

Maximum Refinance Amounts Changes:

In 2012, the maximum loan to value for a refinance changed from 85% to 80% of the value of your home.  Lenders were finding that consumers were using their homes as an ATM machine.  The concern was that Canada would have a generation of retirees with no equity in their homes and no pensions to pay their debts.   This continues to be an area of interest and may undergo changes in the future.

 

Qualifying Payments Changes on Credit Cards and Lines of Credit: 

Probably the most influential change that I have seen is the 2013 decision to change qualifying payment amounts.  Lenders now require 3% of the outstanding balance on credit cards and unsecured  lines of credit to be added to the total debt to qualify for a mortgage.  Prior to this change, you could use the required minimum monthly payment on your credit card or line of credit.

He’s an example….  You have an unsecured line of credit for $30,000.  You pay the minimum monthly payment and maybe a little extra when you have the funds.  Let’s say $200 per month.  When you apply for a mortgage was have to use 3% of the balance owing as your monthly requirement:  In this case, $900 per month.  That’s an extra $700 per month that gets added to your debts even though, in real life, you are only paying $200!

Conclusion

Each mortgage rule change on its own is not a problem.  When we compound all the changes, it’s difficult to navigate the mortgage options available.  If you are in the middle of purchasing or refinancing your home, please contact me.  We can go over your particular situation to get the mortgage that’s right for you.

Jenni MacDonald

14 Feb

What Do These Changes Mean to Me? Part 3

General

Posted by: Jenni MacDonald

Maximum Amortization Changes:

The second major change for mortgages in Canada is the maximum amortization period that a home owner can get.  Before 2008, a property owner could get a 40 year amortization.  In 2008, that changed from 40 years to 35 years.  In 2011, from 35 years to 30 years and recently, in 2012, the maximum amortization for most mortgages changed from 30 years to 25 years.  Some longer amortizations were available from some lenders with over 20% equity in your home but the new announcement limits that possibility.  If lenders decide to continue some amortizations over 25 years, a higher interest rate may be charged.

 

The amortization is the number of years that the total mortgage can be spread over.  The longer the amortization, the longer it takes to pay off your mortgage but the smaller your mortgage payments.  For instance, on a $200,000 mortgage amortized over 40 years (at an interest rate of 3%), the payments would be $713.83 monthly.  The same mortgage amortized over 25 years is $946.49.  That’s a monthly difference of $232.66.  This could be the difference between an approval or a decline.

 

The significance of this change is not only the amount of mortgage payment that you use to qualify your initial purchase but also influences your refinance options in the future.  If you want to refinance your home and you currently have over 25 years left on your mortgage, you have no choice but to use the new maximum refinance amortization of 25 years or less.  This may limit the amount of mortgage you can qualify for in order to pull out equity from your home.

Down Paymen

ts Change:

In 2008, the minimum down payment allowed on the purchase of a property officially changed from 0% to 5%.  In reality, many lenders continued to offer options like 5% cashback that a buyer could access for their down payment.  Now, borrowers can no longer use the cashback option for down payments.  There are a few lenders that allow borrowed down payments but they are few and the qualification requirements are stringent.   The best options for down payment are saving from your own resources or a gift from an immediate family member.

If you are in the middle of purchasing or refinancing your home, please contact me and we can go over your particular situation to see if this change will affect your ability to get the mortgage you are looking for.

Jenni MacDonald

613-551-0639

Mortgage Broker

Dominion Lending Centres The Mortgage Source

13 Feb

What Do These Changes Mean to Me Part 2

General

Posted by: Jenni MacDonald

November Mortgage Rule Changes

The result of the November, 2016 change is that many non-bank lenders have already cancelled the mortgage products available for rental properties and refinances.  The impact for Cornwall borrowers is already significant.  As a small market with a large rental portfolio, Cornwall borrowers looking to get refinance mortgages on their rental properties are limited to major banks.  When rental property owners are approved by the Bank, the changes have made rental mortgage products more risky, so there is now a premium on mortgages for rental properties.

Also, single family home rentals are now not accepted by most lenders.  Self employed clients have fewer choices to obtain a mortgage.  Owner occupied home owners in our area have been forced to use Bank lenders.  Unfortunately, many property owners do not meet the stringent rules of major Banks.  With the loss of the smaller lenders, Banks will not have the competition we have established in the Canadian mortgage market.  Loss of this competition will allow Banks to increase mortgage rates at the cost of the Canadian consumer.

Traditionally, many lenders have been hesitant to lend in Cornwall and with these changes, we have lost even more lending options.   The result I have seen in Cornwall already is that private lender mortgages are needed more than before.  These mortgages are very expensive and should be used as a short term solution.  These changes leave the borrower in these high rate mortgages for longer terms.

Qualifying Rate Change:

On October 17, 2016, the government made the changes to control the housing markets in Vancouver and Toronto but we are all affected by the decision.  Unfortunately for the smaller lenders, big banks can still choose to qualify the mortgage at the contract rate while the smaller lenders do not have the option.  This gives the Banks an unfair advantage.

Basically, until now, when you apply for a 5 year fixed mortgage, your ability to pay for the mortgage was calculated on the actual rate you would pay (around 2.49%).  If the amount of your total debt came in around 44% or less compared to your gross income (depending on your credit score and the lender you were working with), you would likely be approved for the mortgage.  With this change, you will still pay 2.49% interest but in order to qualify how much your mortgage payments will cost you, the payments are calculated at the posted rate (currently 4.64%).  The posted rate has been used to qualify variable rate mortgages, Home Equity Lines of Credit and 1-4 year term mortgages for years.  This change now requires 5 year fixed mortgage terms to be included as well.

That may not seem significant but let’s look at a specific situation:

You want a mortgage of $200,000.  With a 25 year amortization at a 2.49% interest rate for the 5 year term, the payments would be about $894.94.  That amount is added to your other monthly debts and your ratio has to come in under 44% compared to your gross income.  The new rule means, even though in real life you will be paying $894.94 each month for the next 5 years on your mortgage, the application will have to show you will be paying $1,122.96 each month for the next 5 years and still calculate under 44% compared to your gross income.  That’s an extra $228.02 per month added to your total debts.  It can make the difference between an approval or decline if your credit card debts are fairly high.  You may not qualify for the full $200,000 anymore.

If you are in the middle of purchasing or refinancing your home, please contact me and we can go over your particular situation to see if this change will affect your ability to get the mortgage you are looking for.

Jenni MacDonald

613-551-0639

Mortgage Broker

Dominion Lending Centres The Mortgage Source

 

13 Feb

What Do All These Mortgage Changes Mean to Cornwall, Ontario? Part 1

General

Posted by: Jenni MacDonald

Recent Announcements

With the sudden mortgage changes announcements on Monday, October 5, 2016, came a flood of concerns about the impact of the upcoming changes.  In reality, these are just more major changes in the mortgage landscape in Canada.  While each change on its own is not completely overwhelming; the combined effect of these changes has significantly impacted the possibility of getting a mortgage.  These changes effect home owners in Canada, and Cornwall, in particular.

Changes

The major changes that affected most of Cornwall area property owners in the last 8 years are:

  1. October changes to the qualifying rate on a 5 year fixed mortgage from the actual rate (around 2.69%)  to the qualifying posted rate (4.64% at this time) (2016)
  2. Maximum amortization changes for an insured mortgage from 40 years to 35 years (2008), from 35 years to 30 years (2011) and from 30 years to 25 years (2012)
  3. Minimum down payment changed from 0 to 5% (2008)
  4. Changes to documentation and credit score requirements (2008)
  5. The maximum refinance percentage changed from 85% to 80% (2012)
  6. Qualifying payment amounts changed on unsecured lines of credit and credit cards to 3% of the balance owing instead of required minimum payment amounts on statements (2013)
  7. Portfolio (bulk) insurance must now meet the same criteria as those that are high-ratio insured. This change effects obtaining a mortgage for: over 25 year amortization, rental and investment properties, refinances and homes with values greater than $1M.  They can no longer be bulk insured.  The long term effects have yet to be determined but in the Cornwall area alone, there have already been negative results.  (November, 2016)
  8. New increased capital requirements to be held in reserved for non-bank lender. (January, 2017)
  9.  Increase to CMHC insurance premiums. This is the third increase in three years. (March 17, 2017)
  10. “Risk sharing” model for lenders to share in losses of insured mortgage claims. (Proposed)
  11. Implementation of regional-based pricing.  (Proposed)

Results

Over the next few weeks, we will go over each of these changes and their effect on your qualification for a mortgage.  In the meantime, there is no need to panic but it may be time to evaluate.  If you are in the middle of purchasing or refinancing your home, please contact me and we can go over your particular situation to see if the recent changes will affect your ability to get your mortgage.