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Transcript of Video Blog:
Hi, everybody. It’s Rowan Smith from the Mortgage Center. I want to talk today specifically about lines of credit. More importantly I want to talk about lines of credit that you want to keep but you maybe want to renegotiate maybe the mortgage in front of it. This is something that comes up from time to time. Continue reading ‘Line of Credit At Renewal – As Explained by Vancouver Mortgage Broker Rowan Smith’
Transcript of Video Blog:
Hi, everyone. Rowan Smith from the Mortgage Center. I got a call today about a client who wanted to do some renovations on the home when they bought it. And they said to me, “But I don’t have the money for doing the renovations I’d like it built into mortgage. Is that possible?” Yes, there’s a few different ways to do it. One of the most common programs is “Purchase plus Improvements”. And under that program, the way it works is, you borrow money. Continue reading ‘Renovation Financing Explained by Vancouver Mortgage Broker Rowan Smith’
Transcript of Video Blog:
Everybody, Rowan Smith from the Mortgage Centre. I’m here today to talk again abut a topic that seems very popular among my blogheads, which is former marijuana grow ops. Can you finance them, or how to finance them? The answer is, “Yes, you can,” and the way to do it is this. There’s typically going to be extra underwriting that’s going to be required. Not all banks are going to be willing to do that… Continue reading ‘Former Grow Op Updated – By Vancouver Mortgage Broker Rowan Smith’
Transcript of Video:
Hey everyone, Rowan Smith with the Mortgage Centre. I want to address a question a client came up with me on with the credit bureau. And that is, he wanted to know why his extra payments weren’t reflected.
The credit bureau is just a recording of debt payment history and how much your minimum payments are on a particular line of credit, and how your credit history is in terms of your repayment over the long last five years.
If your payment is only $300 on your credit card, and let’s say you owe $10,000. Typically, a credit card would be three percent of balance, so your payment should be $300. So are you getting further ahead by paying $450? Not on a credit bureau, it doesn’t really have a noticeable impact.
A bigger impact would be reducing the balance that you have, that will increase your score better. But even though you pay extra every month, it has no bearing on your actual credit score. It’s simply a factor of do you pay it on time, and what percentage of that credit facility is utilized.
So if you have a $10,000 line of credit, and you’re at $10,000, even though you’re making every payment on time, that’s more harmful than having a $20,000 credit card with only $10,000 outstanding. To that account, you’re only 50 percent utilized.
And again, it’s just a computer algorithm behind this, so the computer system can only make judgments based on that criteria. For the Mortgage Centre, I’m Rowan Smith.
Transcript of Video Blog:
Hi everybody, it’s Rowan Smith with the Mortgage Centre. We’re going to do something a bit little different here this week. It’s where I’m going to answer one of the most common questions I receive, which is “Can I roll my other expenses into my mortgage?” So let’s look at exactly how that would go down.
In this example, we’ll take a look at down payment, how it’s structured in an individual mortgage deal. For the purposes of illustration, let’s assume $100,000 purchase price — just to keep our numbers nice and round.
Now, in Canada, the maximum amount of financing that you’re allowed to get on a property is 95 percent. So in order for you to roll any additional costs into that, you would have to roll more than 95 percent.
So if someone says to me, “Can I roll my car payment into my mortgage?” They’re faced with the same set of constraints — $100,000 purchase price, 95 percent or $95,000 financing. But they ask me, “Can I roll the $10,000 a month loan into my mortgage?”
We end up with a situation where the client is rolling more than 100 percent of the value of the home. This is not allowed. So are there ever situations where you can roll costs into your mortgage? The answer is “Yes, you simply have to have a more substantial down payment.”
Consider this example — a client purchasing a $100,000 home, has $50,000 down payment, 50 percent down. That same person asks, “Can I roll my $10,000 car loan into my mortgage?” The answer in this case is “Yes.” They are well below the maximum Canadian level for financing.
But there’s a second twist to this. Are they below the 80 percent rule? Now the 80 percent rule, anything over 80 percent financing — so borrowing more than 80 percent triggers CMHC fees on a sliding scale. If you were to borrow as high as 95 percent, those fees could be upwards of $3,000. So it may not make sense in those circumstances to do so.
If somebody is looking at buying this piece of property and rolling their closing costs in, in addition to it, they can do so up to 80 percent. Now they can go beyond 80 percent, but then they start incurring CMHC fees. But again, the maximum of 95 percent applies. You can’t roll more than 95 percent into the financing.
As usual, if you have any questions, feel free to call me anytime. I’d be happy to look at your specific situation, see if there’s a way we can perhaps optimize the other debt that you have — whether it be through a consolidation loan or through consolidating it into your mortgage.
The important thing is not to look at it as “Am I rolling it into my mortgage?” But rather, “Am I able to put less down and keep money back to pay these other expenses?” For the Mortgage Centre, I’m Rowan Smith.
Transcript of Video Blog:
Hi, everybody. I want to address a very common myth, and that’s that people think their variable rate mortgage, because it is open to fluctuations, is in fact an open mortgage. That’s not the case. There’s a lot of confusion as to what is an open mortgage versus a variable mortgage versus a closed mortgage or a fixed mortgage.
So, a fixed mortgage, well, obviously, your rate is fixed. You don’t have to worry about fluctuations in prime rate. For whatever the length of your term, whether it’s one or five years, your rate is fixed. Now, all fixed rates that we get here are closed. Meaning, to break that term — if you sell the home or you try to refinance during the term — you’re going to owe.
Typically, the penalty is the interest rate differential, the greater of the interest rate differential or three months of interest. Now, if rates have fallen substantially, you can expect the penalty to be quite large because it will be the interest rate differential.
If you do a search, some of the other blogs that I’ve done on penalties, you’ll see that there’s — I’ve explained the method of interest rate differential penalty calculation at a little more length. But in any case, if you have fixed — closed in almost every single case.
If it’s not a fixed or closed, then you’re going to be looking at a variable rate. Now, there is two types of variables — variable open and variable closed. The only difference between the two, other than rate, is that variable open can be paid off at any time with no pre-payment penalty whatsoever. The variable closed typically has a three-month interest penalty.
So you say, “Well, why would anybody take variable closed when they can take a variable open?” The difference is rate. Variable opens typically right now run you anywhere from prime plus 0.8 to prime plus 1.0. Prime rate is 3%, so that means your rate would be 3.8% to 4%.
Compare that to a variable closed mortgage will be at prime minus 0.75 or prime minus 0.8. So you’re looking at almost a point and a half to two-point spread between the two. So you can be paying 2.25% or you can be paying 3.75%. Clearly, the variable closed is a better deal if you’re going to hold the property for any length of time.
So people often come to me and say, “Well, I intend to sell it maybe in the next year or something.” Well, even in those cases, oftentimes the savings over a year-long period of time of getting the lower variable closed rate is better than paying no penalty, but paying a much higher rate as you go along.
So the important distinction here is that your open mortgage, you want to figure out how long are you going to hold that property? Open and avoiding a penalty may sound nice in principle, but if you actually end up spending thousands of dollars more over the life of the mortgage, why bother avoiding the penalty just to pay more monthly? For the Mortgage Center, I’m Rowan Smith.
Transcript of Video Blog:
Hi everybody, it’s Rowan Smith with The Mortgage Center. We’re going to try something a little different this week, and we’re going to cover something that’s very commonly requested of me, which is details on debt servicing, what is it, and how to calculate it.
So there’s two main ratios that the lenders use when they’re calculating debt servicing. The first is GDS for gross debt service, and the second is TDS for total debt service. Gross debt service or GDS, which is the first ratio we look at includes your principal, interest, taxes and heat, and what we’re trying to do is a find a percentage of your gross income that this equals.
So principal and interest is effectively your payment, so whatever your payment is plus taxes and heat. A good rule of thumb is that GDS should not exceed 35%. I mean, yes, there’s exceptions to this, but that’s a good base-line if you’re trying to figure a rough equivalent of what you can afford.
Total debt service on the other hand includes not only principal interest, taxes and heat, but also any other debt payments or obligations. Now not everything is included in there, and we’ll get to that later, but all debt payments. A good rule of thumb is that TDS should not exceed 42%.
Exceptions up to 44% and beyond are available, depending on someone’s credit score and the particular program that we’re using and applying for. Of course the amount of down payment you have also plays into this, so it’s important to know exactly what rule you’re working at before you go in and apply for something.
So let’s go through GDS, we’ll actually look at how to calculate it. This is a scenario, the common scenario that you see. Someone has an e-mortgage payment that’ll work out to $2,500 a month, and that couple makes $120, 000 a year, combined, both of their jobs, so $10,000 a month. Property taxes are $3, 600 per year, that works out to $300 per month, and heat is $100 at most lenders.
There’s a few that’ll use $85, some of that will use less, that’s conned over. It’s not a big difference, $100 should be used for roundness. Strata fees on the townhouse they’re buying are $330 per month. Now currently, banks only use 50% of the strata fees to count towards GDS and TDS, you have to remember that when you’re working through it. If it is a strata property, meaning an apartment, townhouse, condo, something like that, and there are fees, then only 50% of those are used.
So here’s the calculation. You make $2,500 payment, plus $300 taxes, plus $100 heat and $165 strata fees equals $3,065. $3,065 divided by the $10,000 monthly income, as expressed as a percentage, is 30.65% gross debt service, or GDS, which is within my 35% guideline I gave you. So based on GDS, yes this would be approved.
TDS is a little bit different, similar but different. Same scenario, same payments and all that. The only difference is that last line there, since the client has a $300 per month car payment, and those $8,000 in credit card debt. So here’s the calculation, and I want to note here, for credit cards, most banks use 3% of the amount owing to determine what we’re payment will be. So in this case, $8,000, 3%, $240 will count towards TDS per month. You notice I like to convert everything to monthly numbers, because that tends to be how most people run their budgets, so it’s how I do that.
$2,500 mortgage payment, plus $300 taxes, $100 heat, $165 strata fees, plus the $300 car payment and $240 equals $3,605 per month counted towards their $10,000 income. $3,605 divided by $10, 000 equals 36.05% TDS, total debt service. Again, it’s within my range of 42% that I gave you. So the two ratios to keep in mind are GDS and TDS, 35, 42 respectively. There are exceptions, but for now those are important.
A couple of notes on TDS. People often say to me, “Well wait, if I’ve got monthly bills, what about my cable bill and my cell phone bill?” No. Cable bills, cell phone bills, telephone or Internet bill are not included. Other things not included in monthly RSP contributions, but the loans are; car insurance, house insurance, repairs and maintenance to property and income taxes.
Now you may say, “Well wait, a lot of those are really important expenses, things that I have to pay for” but that’s why we only use 42% or 44% of the TDS calculations. The other 56% to 58% are for those other expenses that everybody else pays. Some things that must be included in TDS and that often people wish were not: child support payments, alimony or spousal support payments, any other loan, credit card, line of credit or monthly debt obligation, car lease payments. If you’re making another year on account, then a year of payment may count towards TDS.
Now it’s a lot of numbers. If you have any questions, feel free to give me a call. I’m happy to run through your situation for free. Everybody’s is different, and it takes some experience to know what numbers actually have to be included, what are not included. So again, for The Mortgage Center, I’m Rowan Smith.
Transcript of Video Blog:
It’s Rowan Smith from the Mortgage Centre. I want to address a very common myth that I hear about, that clients will come to me and say, “Well, I’m a first-time home-buyer, so don’t I get a better rate on my mortgage?”
The answer is absolutely not. Everybody is going to get the same rate based on their credit score and their income and whatnot. Where you get the benefits as a first-time home-buyer is being A, being able to take money out of your RRSP, tax-free, up to $25,000 per person on your first purchase of your home.
And you’re allowed to avoid the Property Transfer Tax, up to a purchase price of 425. Anything over 425 but up to 450, there’s a sliding scale. If you’re buying something over $450,000, it doesn’t matter if you’re a first-time home-buyer or not, you’re going to pay the full Transfer Tax.
The government, I guess, looks at it and says if you can afford a home that that’s expensive, that you shouldn’t be getting the tax break to being with.
So again, just as a recap, RRSPs can be used tax-free for your down payment, and Property Transfer Tax. Those are the only benefits, the only things you get to avoid as part of being a first-time home-buyer. There is no special incentive on rate, I’m sorry. For the Mortgage Centre, I’m Rowan Smith.
35 and 40 Year Mortgages – Recent Updates
In this video, I look at who is still offering 35 or 40 year amortizations and explain some recent changes in the market place.
Video Transcript:
Hi, everybody. It’s Rowan Smith from the Mortgage Center. It’s been a while since my last post and I wanted to provide an update on a couple of things that I get constant questions about in our market place.
Back in April when the changes the government handed down took effect it got rid of what most people thought would be all of the 35 and 40 year amortizations. So the question is, is a 35 or 40 year amortization still available? Short answer, yes. Now, the longer answer is a little more complicated… Continue reading ‘35 and 40 Year Mortgages – Recent Updates’