Author: Team Vertuity

Mortgage Stress Test Will Challenge First Time Home Buyers

Posted on by Team Vertuity

The federal government implemented a more stringent mortgage stress test for new mortgages on October 3rd, 2016. The mortgage stress test will be a challenge for new home buyers.

Low interest rates have created several hot markets across Canada. Concerns about housing affordability have moved the government to make rule changes to support the long-term housing stability.

Vertuity Mortgage, the leading mortgage broker in Winnipeg, is helping clients understand and manage the new mortgage stress test.

All banks and mortgage brokers have to use new procedures in order to qualify a client for a mortgage. The new rule change requires all new mortgage applicants to pass a mortgage rate stress test for insured mortgages regardless of the amount of a down payment. The test determines whether a buyer can afford to make payments if mortgage rates rise to the Bank of Canada’s posted five-year fixed mortgage rate.

The Bank of Canada’s rate is often significantly higher. The Bank of Canada rate is currently 4.64%. The current 5-year fixed rate mortgage is around 2.44%.

First-time home buyers may have a challenge to face as buying power has been reduced by nearly 20%.

Vertuity Mortgage is prepared to explain how the new mortgage stress test may affect you and your new mortgage. By using a mortgage broker you will have more options.

As a top mortgage broker in Winnipeg, Vertuity Mortgage has access to over 40 different lenders and typically works with 5-10 lenders to meet a client’s needs. Vertuity is a local company but is part of a national mortgage franchise that creates great “buying power”.

Contact Vertuity Mortgage for a personal consultation and learn how we can help you navigate the changing mortgage marketplace.

Federal government announces new mortgage changes

Posted on by Team Vertuity

On October 3, 2016 the federal government announced a number of changes to housing rules meant to protect the long-term stability of the market.

According to an article in the Vancouver Sun, the changes are aimed at “curbing risk in the country’s housing markets, including closing a tax loophole and tightening mortgage insurance rules to prevent borrowers from taking on too much debt.”

Principal residence tax exemption
According to the Financial Post, “foreign buyers who were not residents at the time a home was bought will no longer be able to claim a principal residence exemption, and families will only be able to designate one property as the family’s principal residence for any given year.”

Stress tests for insured mortgages
The Financial Post said the federal government will implement mortgage stress tests for all insured borrowers. “Homebuyers who make a down payment of at least 20 per cent of the property purchase price — will begin facing the same stricter eligibility requirements as homebuyers with lower down payments. The stress tests will include seeing whether homebuyers can afford their mortgage payments if interest rates rise.”

Mortgage Qualification Rate
As of October 17th, all mortgage applicants will need to qualify at the Bank of Canada’s 5 year fixed posted rate. Currently, buyers could qualify for a mortgage based on the much lower discounted rates offered by lenders.

Please contact Vertuity Mortgage for more information about the recent Canadian mortgage changes.

Posadzki, Alexandra. (2016, October 3). Federal government announces new measures intended to reduce housing market risk. Vancouver Sun. Retrieved from http://vancouversun.com/business/real-estate/bill-morneau-to-announce-preventative-measures-for-canadas-housing-markets-today?__lsa=e78f-8dec

Shmuel, John. (2016, October 3). Federal government closes tax loophole used by foreign home buyers, hikes mortgage scrutiny. Financial Post. Retrieved from http://business.financialpost.com/personal-finance/mortgages-real-estate/federal-government-closing-tax-loophole-used-by-foreign-home-buyers

 

The First Time Home Buyers Tax Credit (HBTC)

Posted on by Team Vertuity

Buying your first home is one of life’s major events.  No one will say it’s an easy thing to do. It’s hard to save money for the right down payment. It’s helpful though to take advantage of government programs designed for first time home buyers.

In 2009, the federal government of Canada instituted the First Time Home Buyers Tax Credit (HBTC) as part of Canada’s Economic Action Plan. The HBTC is an income tax credit to encourage first time home buyers to enter the housing market and purchase a home. It is a non-refundable tax credit that reduces the amount of federal income tax you have to pay.

The amount of the tax credit is based on the lowest federal income tax rate for the year. For the past few years the lowest rate has been 15 percent. The lowest rate is multiplied by $5,000 to make the HBTC a value of $750.

There are a few qualifications that need to be met to be eligible for the program:

  • You, your spouse or common-law partner purchased a qualifying home during the tax year.
  • You, your spouse or common-law partner didn’t own a home during the tax year.
  • You didn’t own a home any of the four preceding years.
  • You occupy the home and make it your principal residence no later than one year after you purchased it.

A qualifying home is housing located in Canada. It includes existing or newly built homes, single-family homes, semi-detached homes, townhouses, mobile homes, condominium units and apartments.

For a person with disabilities, the applicant doesn’t need to be a first-time home buyer. To qualify as a person with disabilities, the same definition that is used when claiming disabilities for income tax purposes applies.

To claim the HBTC, use line 369 in the Schedule 1, Federal Tax of your personal income tax return. You claim the HBTC in the taxation year in which the qualifying home is acquired. If you purchased the house with your spouse or partner either one of you can claim the credit or you can share it as long as the credit doesn’t exceed $750. If you purchase a home jointly with an individual, you can both claim the credit but again, the credit doesn’t exceed $750. You don’t need to provide any documentation with your tax return although the documentation should be readily available.

Purchasing your first home can be a challenge.  Taking advantage of programs like the Home Buyers Tax Credit can make the challenge a little more manageable.

New Down Payment Rules Effective February, 2016

Posted on by Team Vertuity

If you want to buy a home in 2016 you’re going to need to know about the new minimum down payment requirements announced in December of 2015.

Effective February 15, 2016, the minimum down payment for new insured mortgages will increase from five per cent to 10 per cent for the amount of the purchase price above $500,000. For the first $500,000 of the purchase price the minimum down payment remains at 5%.

In other words, if you’re purchasing a home for $1 million the first $500,000 requires 5% for the down payment and the second $500,000 requires 10% for the down payment. The total down payment would increase from $50,000 minimum to $75,000 minimum.

Read more about the down payment requirements in New Down Payment Rules: Time to Exhale at CanadianMortgageTrends.com

Eliminate 8 Money Wasters to Save for a Down Payment

Posted on by Team Vertuity

If your goal in 2016 is to save enough money for a down payment on a new home, here’s eight money wasters you can eliminate.  Author Angela Colley’s article “Resolve to Give Up These 8 Money Waters fro a Down Payment Before 2017” identifies 8 items you can remove from your spending to save $9,400 by the end of 2016. These items consume your discretionary spending and limit your ability to save.

  1. Skip the latte

Annual savings: $876 (plus taxes!)

  1. Cut the gym membership

Annual savings: $696

  1. Cancel the cable

Annual savings: $1,189

  1. While you’re at it, drop a streaming service

Annual savings: Nearly $100

  1. Lower your mega smartphone plan

Annual savings: Up to $300

  1. Pack a lunch instead of buying it

Annual savings: $1,714

  1. Quit drinking

Annual savings: $3,168

  1. Go to the cleaners less often

Annual savings: $1,354

Read the full article “Resolve to Give Up These 8 Money Wasters for a Down Payment Before 2017” on realtor.com

Why Refinance your Mortgage?

Posted on by Team Vertuity

In the strictest sense, to refinance your mortgage means replacing your current mortgage with another mortgage. In practice, this means that you’ll have to conduct research to reveal your options, compare your current mortgage with your options, and then submit to the standard process used to secure a mortgage if you feel that refinancing is in your best interests.

Reasons to Refinance your Mortgage

Generally, you refinance your mortgage because your new mortgage comes with new interest rates and other borrowing conditions, which can provide you with a more manageable outstanding balance. However, there are also other important benefits to refinancing your mortgage, though not all of them will appeal to all of mortgage-holders out there.

Here are some of the most popular answers to the question of why refinance your mortgage:

  1. One of the most popular reasons to refinance mortgage is the continuous change in interest rates over time. For example, interest rates plummeted in the course of the Great Depression. Someone who had taken out a mortgage prior to the collapse of the real estate market would have been stuck with the high interest rates, unless said individual could refinance his or her mortgage.
  2. Of course, refinancing your mortgage means that you might also be able to secure better borrowing conditions other than lower interest rates. For example, if you find that your current monthly payment is too onerous, then you may be able to secure a smaller monthly payment in exchange for a longer term. Alternatively, you may choose to reduce the overall cost of your home by shortening your term so as to pay less interest.
  3. If you are in need of cash with which to start a business, eliminate outstanding bills, or cover some other costs, then refinancing your mortgage can be one of the best solutions out there. This is particularly true if you’ve had your current mortgage for some time, since that means you’ll have more equity built up in your home.
  4. Managing more than one debt obligation can prove to be a bit of a hassle, which is why some people refinance their mortgages with the intention of consolidating their debts. In short, you refinance your mortgage to get cash, which you then use to pay down your other debt obligations. Using this method, you’ll only need to make the payments on your new mortgage going forward, which can save you both time and frustration.

Refinance Your Mortgage

Of course, refinancing your mortgage has its costs. For example, most mortgages have early repayment fees, which can cancel out the financial benefits of securing lower interest rates. Ultimately, the question of why refinance your mortgage is something that only you can answer, as you are the person best placed to understand your personal needs and priorities. However, never forget that speaking with the experts at Vertuity Mortgage can help you both understand mortgages better and clarify your personal priorities.

How Does Mortgage Renewal Work?

Posted on by Team Vertuity

At Vertuity Mortgage, one of the most common questions that we hear from our clients is how the mortgage renewal process works. Simply put, whether your mortgage comes up for renewal in 35 months or 10 years, the renewal process provides you with an opportunity to re-evaluate your personal financial situation and mortgage needs before you decide on a new mortgage product.

Leading up to your mortgage renewal, you will receive a notice in the mail from Vertuity Mortgage to notify you that your mortgage is coming due. One reason why our mortgage brokerage firm is so attractive to our clients is that we have the ability to lock the interest rate for your renewal as early as 4 months out (120 days), which is something that many financial institutions are not able to offer to their clients. By offering a 120 day rate guarantee, we are really able to set ourselves apart from others in the industry and provide our clients with peace of mind during the renewal process.

During your renewal period, you have a chance to renegotiate your interest rate and term for your mortgage. Being a mortgage broker, one of the things about Vertuity Mortgage that makes us unique is that we will shop your renewal to over 20 lenders that will all put their most aggressive offers together in an attempt to win your business. If you decide to transfer your mortgage to a new lender during this renewal period, it will not cost you anything as the new lender will cover all of the costs to transfer the mortgage.

If you are considering purchasing a new home and are trying to weigh the pros and cons of the various mortgage options available to you, it is important that you understand how themortgage renewal process works before determining a maturity for your mortgage.

Mortgage interest rates are priced based on risk, so typically the longer the term of your mortgage, the higher the interest rate will be. Mortgage rates in Canada still continue to be at historic lows, meaning that if you lock in on a mortgage with a shorter term, you are likely to receive a rate that is more favorable. The longer you extend the maturity of your loan, the higher your interest rate will be as banks price based on interest rate risk. When your mortgage comes up for renewal, you will renegotiate your terms based on interest rates at that time.

If you have a low risk tolerance, you may want to consider opting for a mortgage with a longer term as today’s low interest rates still make longer mortgage terms very appealing and affordable to clients.

All in all, if you have a mortgage renewal coming up, consider it a great opportunity to re-evaluate your financial picture and get a loan structure that will best suit your needs. By shopping the lending market and handling the negotiations for you, our team at Vertuity Mortgage helps to make the mortgage renewal process incredibly easy for our clients.

Please contact us to learn more about how the renewal process works and the current options available to you.

How to Apply for a Mortgage as a First Time Home Buyer

Posted on by Team Vertuity

A home is one of the best personal assets you can invest in. You cut yourself from what would otherwise be a lifetime expense of rent and you have an asset that for the most part, keeps on appreciating in value. A house is also a great asset to pass from generation to generation.

You may be unsure about how to apply for a mortgage as a first time home buyer. There are a number of factors to consider, a lot of paper work to be done and a process to be followed.

Get a guiding hand 

A first step would be getting guidance from an expert. They will guide you through a process that might otherwise be confusing. It is best to consult a mortgage officer or mortgage broker. Apart from having updated information on housing market conditions, they can also advice you on what is best for you in line with your financial circumstances.

A misstep can cost you a lot down the road. If you go for a house you cannot really afford, you may eventually lose it when you fail to keep up with repayments or you may have to compromise your quality of life to keep up with the payments. Also, choose the wrong mortgage product and you end up paying so much more that you could have avoided paying over the duration of the loan.

Starting the process 

The first step of applying for a mortgage as a first time home buyer is getting pre-approved.  Pre-approval will give you an idea of the kind of mortgage you can secure which determines the kind of house that you can buy.  Pre-approval also gives you a rate guarantee that is valid for 120 days. During this period, you are cushioned against higher rates should you complete the process of securing a mortgage.

What is needed to get pre-approval?

Getting pre-approved will depend on the information and documents you provide. Submitting complete and updated information will give you the best chance of getting pre-approved and securing a first time home buyer mortgage at the best rates and terms.

If you are working with a mortgage broker, they will represent you and present your documents to lenders. Lenders will offer or deny you pre-approval based on an assessment of:

  • Your income
  • Your current liabilities or debts
  • Your employment or self-employment history
  • Your credit history and rating
  • The current property value

When you know that these are the factors that are assessed, you can improve your chances of getting pre-approved by putting in a strong application. This is one with:

  • Good credit history where your bills and any debts like credit card balances are paid on time
  • Debt to income ratio that does not exceed 44% meaning that no more than 44% is being used on paying off debts
  • A steady source of income where you have held the same job for at least two years or have derived steady income from your business for the same period
  • A household expense ratio that does not exceed 32% meaning that no more than this percentage is going towards paying for utilities and other household expenses
  • The value of the home is equal to the price that it is being sold for

Hopefully, your pre-approval application goes through. You can then start looking for a house that is within the range you have been approved for. There will be more paper work to do before your mortgage for a first time home is completed but you will be well on your way to becoming a proud home owner.

Pre Approval vs. Pre Qualified Mortgage

Posted on by Team Vertuity

The first day of school, the first holiday without parents and even the first kiss are milestones you will probably remember for a lifetime. However, being given the keys to the first house you own rather than rent will undoubtedly be the most significant one.

Before you can buy your first home, you must find a suitable house and be able to secure the right mortgage. The type of mortgage you opt for will depend on your down payment, your credit history, and the disposable income you have for your monthly payments. However, whether you choose a fixed-rate mortgage or take a leap of faith with a variable rate, first you will need to find a lender and be approved for a loan.

Understanding the difference between pre approval vs. pre qualified mortgages is essential, and you should carefully consider both, before going house hunting with either. 

What Does It Mean to Be Pre-Qualified? 

The most important aspect of being pre-qualified for anything is that it does not guarantee that you will receive the end product. The easiest way to understand this is in terms of applying for employment – with your skills, experience, and achievements, you can be qualified for a job; however, that doesn’t guarantee you’ll be chosen for the position, if you apply.

Pre qualified mortgages works in a similar way. Your chosen lender will work through a range of information with you to assess your financial situation, based on estimates of your income and expenditure you provided. You may also be asked about your assets and any outstanding debts that you have at that time. These details will be used to provide an estimate of how much you can afford to borrow.

Having this information allows you to begin looking at houses within your given price range. It also gives you an indication of what changes you may need to make to your lifestyle or employment if you want to be considered for a larger mortgage. However, you could still be refused the pre-qualified amount if there are problems with your credit rating or there is a gap between your estimates and the actual income/expenditure amounts once they are verified.

What Does It Mean to Be Pre-Approved? 

You could compare the pre-approval process to jumping into a rushing river without a buoyancy aid – to get pre-approved for a mortgage, you will need to supply all the details that are required, and undergo a full credit check.

The main benefit of getting pre-approved is that you will know exactly how much you can borrow. Not only will you be able to set a price range on offers for your perfect house, but the mortgage rate your loan is subject to will also be guaranteed for up to 120 days, giving you enough time, to actually find your perfect home.

However, the lender can still put conditions on the final approval of the mortgage. These conditions can be attached to the property, such as proof of the property’s appraisal, or can be attached to you and can include proof of your down payment fund.

Which One Is Right For You?

Whether you chose to apply for a pre approval vs. pre qualified mortgage will depend on a number of points. If you are in the early stages of house hunting or need to check your credit history then becoming pre-qualified will give you the information you need to start your journey.