The 3 ‘rules of lending’ focus on determining the maximum size of mortgage that can be supported by your provable (what you paid personal income taxes on) income.

You need to consider two affordability ratios:

Rule #1 – GROSS DEBT SERVICE (GDS) Monthly housing costs are generally not supposed to exceed 35-39% of your gross monthly income. Housing costs include monthly mortgage payment, property taxes and heating. If purchasing a condo/townhouse, the GDS will also include ½ of the condo fees. The total of these monthly payments divided by your provable gross monthly income will give you your Gross Debt Service ratio.

Mortgage Payments + Property Taxes + Heating Costs + 50% of Condo Fees/Annual Income

Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 42-44% of your gross monthly income. This includes housing costs (GDS above) PLUS monthly debt re-payment (car payments, credit cards, line of credit, additional financing etc.). The total of all monthly debts divided by provable gross monthly income will give you your Total Debt Service ratio.

Housing expenses (see GDS) + Credit Card Interest + Car Payments + Loan Expenses/Annual Income

The other 56% of income is considered to be used up by normal monthly expenses : taxes, food, medical, transportation, entertainment, etc.)

Rule #3 – CREDIT RATING. Everyone on the title of the property is required to have their credit checked. Credit is important as it shows lenders how past and present credit has been handled. This gives the lender an indication of how future credit will be handled, and whether or not you will be a good risk and make your required mortgage payments. If credit is handled well, you will receive competitive interest rates from the banks/lenders. If credit has not been handled well, higher rates or declines can occur.

If you have any questions, contact me today!

dcarlson@jencormortgage.com
403-245-3636 x 2027

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 categories:

1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage

2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.

3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market.

Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second.

If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

While there are rumours that the Government may start to allow refinances and 30-year amortizations to be insured again, no formal announcements are expected in the next few months.

In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.

If either a refinance or a longer amortization is something you are considering, it’s wise to have a free analysis of your mortgage done so you can make an informed decision. If you have any questions, contact me today!

dcarlson@jencormortgage.com
403-245-3636 x 2027

By; Kristin Woolard – DLC

The Huffington article states “Canadians pay attention to the big guys, however, because they’re either too comfortable to make a change or simply not aware they’re being taken for a ride. The banks have a 90-per-cent stranglehold on the Canadian mortgage market and we’ve been slow to start paying attention to the alternative — often cheaper — options out there.”

The drop in rates was a measure to bring bank rates in line with the non-bank lenders who have already been offering lower pricing. The only difference is the banks have high market share of the business and more profit each year so they can afford to spend money on media and other forms of advertising. The media attention helps them to capture more business with a rate drop after a lag time of passing on higher rates to consumers. The informed consumer working with an independent mortgage broker will already know the market and what mortgage product is best for their needs.

However, interest rates are not the only consideration when choosing a mortgage. Each time you make a purchase, renew your mortgage or take equity out to renovate, invest or other reasons, it is always best to consult with your mortgage broker for a review.

One of the big factors is the cost to exit that mortgage before maturity. Life happens. There are costs to breaking the contract early in the event of sale, marital break-up, death or need to consolidate other debts. Bank penalties for early payout are higher than non-bank penalties by a factor of 4 times. By reviewing your needs with me, we can discuss all of the options available from lenders including bank and non-bank, to ensure you are making an informed decision.

dcarlson@jencormortgage.com
403-245-3636 x 2027

By: Pauline Tonkin-DLC

Picture this: You’ve finally been able to put away enough for a down-payment on your dream home. It’s taken you five years of diligent saving, but you did it! You have also been diligently working on improving your credit score and paying off debts and are at a place of financial stability. So, first of all, KUDOS TO YOU! Second…now what do you do? Here are the three steps that will take you from browsing new homes to getting the keys to your new place.

STEP 1: PRE-APPROVAL
This should actually be the step BEFORE house hunting. Visiting your mortgage broker to get pre-approved is the first step anyone looking to buy a home should do. When you meet with your broker for the first time they will:

• Have you fill out an application (or you might be able to fill out one online)
• Pull your credit
• Determine what your maximum purchase price will be.

Be aware that you will also be asked for additional information when you visit your broker to apply, including a letter of employment/pay stub, down payment verification, two years notice of assessment and/or T4’s, a void cheque, and a number of other potential documents.

Once you are pre-approved it’s house hunting time for you! The benefit of having this done BEFORE you start looking is that you can work with your realtor to find properties within that price range.
When you do find just the right home for you, it’s on to step two.

STEP 2: APPROVAL
If you were able to provide the bulk of the paperwork for your pre-approval, then it will be smooth sailing from here. You may have to supply a few pieces of updated information but otherwise, it’s up to the lender to do the hard work at this point.

Your application will be re-assessed, and the lender will take a look at the property you are purchasing. Once they confirm that it aligns with the guidelines they have laid out for your loan, then it is sent off to the mortgage default insurer for approval. At this point, make sure that you do not remove the financing condition until all the lender conditions are met.

Now that you have final sign-off and are waiting for the final conditions to be met, it’s on to step three.

STEP 3: FINAL STEPS
Your broker will notify you once the conditions have all been met, and the lender will send the paperwork over to the Lawyer’s office. The lawyer will take a few days to go through the mortgage and prepare it for your final sign off. When you go, you will be asked to present:

• Void Cheque
• Two forms of identification
• Balance of the down payment in the form of a bank draft

On the day of funding, the lender will send the funds to the lawyer who sends them to the seller’s lawyer who upon receiving the funds will give you the all clear.

All that’s left is to hand you the keys to your new home!

As one final step, keep asking questions at each stage of the mortgage process, and check in with me if you have any questions along the way. I am happy to guide you through the process of not only getting a mortgage but also having a mortgage too!

dcarlson@jencormortgage.com
403-245-3636 x 2027

By: Geoff Lee-DLC

With approximately 1,000 people retiring every day in Canada, it’s not surprising that there has been an increased demand for Reverse Mortgages.

A Reverse Mortgage can assist people aged 55+ to realize their dreams in retirement. Whether they want to travel, help their kids or grand kids or even just supplement their monthly income, a Reverse Mortgage can be an effective way to have their home assist them to meet those goals.

There is a lot of misinformation out there however, that could make people hesitant to get into a Reverse Mortgage. Many people think that the Bank will own their home but this is completely untrue. A Reverse Mortgage is just that – a Mortgage registered on the home’s Title, just like any other bank mortgage. The client retains full ownership and control of their home. They have the freedom to decide if and when to move or sell.

Another misconception is that you could end up owing more than your house is worth. In fact, due to the Reverse Mortgage lender’s conservative lending practices, you can be confident that there will be equity left in the home when the loan is repaid. They will only issue a Reverse Mortgage up to 55% of your home’s value so there is lots of equity remaining to offset accrued interest charges even if you choose to make no payments at all.

In fact, over 99% of Reverse Mortgage clients have equity remaining in the home when the loan is repaid. Many people view a Reverse Mortgage as a ‘last resort’. In fact financial professionals recommend a reverse mortgage because it’s a great way to provide financial flexibility. Since it’s tax-free money, it allows retirement savings to last longer.

Some people think that you cannot get a reverse mortgage if you have an existing mortgage. But many Reverse Mortgage clients use the funds to pay off their existing mortgage and other debts, freeing up cash flow for to use as they wish – and be free of regular mortgage payments too.

I personally have parents over 70-years that could be looking at the expense of Assisted Living for my Mom in the near future. They own their home outright and once both of them are retired that added cost could be too much for their pensions and could force them to sell their home before they’re ready.

I have advised them of the Reverse Mortgage option and we have decided to look into that possibility when the time comes. It is my belief that nobody should feel forced to sell their home and they will explore any options available to them so they have choices.

If you’d like more information on how a Reverse Mortgage may work for you, I recommend calling e-mailing me to get all the facts.

dcarlson@jencormortgage.com
403-245-3636 x 2027

By: Kristin Woolard