No problem? Get it in writing...

This past week I've worked with two separate clients and in each case things where tight with their mortgage approvals. And both of these borrowers owned homes and where not first time home buyers.

In both cases each client was told that their financing would be "no problem" but weren't given anything in writing.  In both cases neither client understood how much equity they had available in their house.  This is always the first step in looking at home-financing, especially if you already own a house. 

Here's one scenario:

These borrowers where selling their home for $275,000 and wanted to move up to a $420,000 house.  They had two good incomes but last year they refinanced their home to consolidate debt so their current mortgage on their home was about $225,000.  When I took into account the real estate commission plus the legal and land transfer tax on the purchase of their new home of $420,000 there was barely 5% to put down on the purchase of $420,000. 

Up until now they had worked with their own bank and I recommended that they get something in writing from their bank regarding their pre-approval.  Their banker had previously recommended paying out some more debt from the equity in their home, but it was obvious through the first calculations that there would not be enough equity to pay out any debt.

When they finally did get an answer from their banker the bank told them they couldn't guarantee the pre-approval because "CMHC doesn't do pre-approvals".  This is absolutely true, but CMHC (the company that insures mortgages against default for banks - this is normally required if you have less than 20% as a down payment), their guidelines are clear.  They're even posted on the CMHC web site!  It was obvious after pulling their credit history that they wouldn't fall under some of the requirements of CMHC. Nonetheless through a little maneuvering I was able to get them a pre-approval, but this was not a mortgage pre-approval that was "no problem".

The moral of the story - work with someone who has the experience to help you.  Get it in writing.

Should you buy a house even if you have consumer debt or student loans to pay?

In the last week, I've see three clients in similar situations. All three clients had good paying jobs, where in their late 30's and had over $20,000 of consumer debt outside of traditional car loans. Should they be considering buying a home? Here's my opinion...if you have any comments on this topic, please share them on my blog!

A home is one of the only appreciating assets you'll own. The trouble with these particular clients is that they have kept waiting to pay off their debt and are now almost 40 years old and still do not own a home. My recommendation would be to review their family budget with them and find a monthly mortgage payment that will help them get into a house, while also developing a plan to pay down their debt.

If they had savings to put as a down payment they could also look at paying their debt down with their savings and getting a cashback mortgage, which gives them the money for the down payment. Remember that you can withdraw up to $25,000 from an RRSP the year you buy a home under the RRSP Home Buyer's Plan.  That money does not need to go to the down payment, it could go to paying off debt.  Now that's a good idea!

Will your variable rate mortgage increase in rate tomorrow?

It's safe to say that the Bank of Canada (BofC) will eventually lift interest rates. But what's less clear is when. We can expect that the BofC will maintain the current interest rates, with no rise in tomorrow's interest rate announcement.  That means if you have a Variable Rate Mortgage (VRM), your rate will remain the same.

If you own a house in Guelph or the Tri-City area you know that our housing market has been strong and steady.  On the mortgage front, one area of concern is the mortgages choices I'm seeing. A VRM is a great option if you're looking at paying down your mortgage in the next few years. Accelerating the payments while rates are low will help you pay down your mortgage principal.  If however you're choosing a VRM just to keep the payments low to help with your budget - then you may want to reconsider a fixed-rate mortgage.

Your mortgage broker can get you a five-year fixed rate mortgage now for under 4% which is a great option.

This is a really great visualization of a trillion dollars....

Inflation is up - what about my Varible Rate Mortgage?

With the price of oil affecting other items in the consumer price index, can we expect the overnight lending rate to rise on May 31?  The overnight lending rate has an impact on the a bank's prime rate, directly effecting variable rate mortgages.

If you have a variable rate mortgage - don't panic!  If the bank of Canada raises rates at the end of May, the benefit of locking into a fixed-rate mortgage may not be the best choice. Remember that the economic indicators that affect the prime rate, don't directly affect fixed-rate mortgages.  Over the last week, we've actually seen a slight decrease in the bond market, which impacts fixed rate mortgages.

Stay-tuned to find out if you should fix your mortgage or keep it floating with the prime rate.

65 and I still have a mortgage

If you own a home in Guelph, often a goal is to have your mortgage paid-off by the time they reach 60.  What I'm noticing in my mortgage practice is more and more people over the age of 55 require the assistance of a mortgage agent because they haven't yet paid their mortgage off. 

There are a few consistent reasons that have come up recently on why a mortgage balance still exists (even after the age of 60):

- overspending on grandchildren (not wanting to let their own children know that they are having problems making ends meet on a retirement income, so the overspending happens on credit cards to "treat" grandchildren)

- unexpected job loss (given we're still in a recession, many older employees have been "let go" close to retirement.  The unexpected job loss and the reduced income means a change in lifestyle, which is often a difficult transition)

If you're in this situation and are wondering what your next course of action is...please don't hesitate to contact me directly.  I'll also be writing a few articles on this topic over the next week.

Using your home’s equity to “get ahead”

If you’re in your 40’s or 50’s and have looked at your investments and thought, “How can I generate more revenue?” – this article is for you. Using the equity in your home for good investments can help you spring ahead financially.


This can be a smart financial move, but you need to work with individuals who are experts. Seek the advice of a professional who has first-hand experience on using home equity as a financial tool. I always recommend getting a referral from someone you know and trust.

There are specialized mortgages available that allow you to easily access the equity in your home for cash investments or real estate. They allow you to convert equity in your home into money and then use that money to invest.

What kind of investments?

Whenever you use your home’s equity to invest in non-RRSP investments or real estate, that portion of your mortgage becomes a tax deduction. Often called “leveraging”, you’re essentially using someone else’s money to make money for yourself. By having a plan of action and a goal in mind, leveraging can help you increase your net worth and help you become financially-free sooner.

I’ve had many clients come to me who had good net worth and ask, “How can I purchase an investment property when all my money is tied up in RRSP’s?”. Often the best place to look is your own home. If you’ve done a good job at paying down the mortgage on your principal residence there is equity that you can access. Financial institutions will allow you to easily access the equity in your home to 80% of the appraised value. This is normally done through a secured-line-of-credit (SLOC). However, not all secured-lines are the same.

What features should I be looking for?

There are certain nuances in the repayment terms and how the interest is charged that you can be a benefit or detriment. An example of a feature that benefits you financially on a SLOC would include having a bank account tied directly to the secured line. When using the SLOC for real estate investing, you can deposit your rent cheques directly into the account, thus making your payment on the SLOC.

Another important feature may be having third-party access to the SLOC. In this case if you’re using your money to buy dividend-paying investments, then the dividends can go directly into paying the interest on the SLOC.

There’s more to mortgages and SLOC’s that can help you become financially free sooner. Ask the advice of someone who has first -hand experience and that you know and trust.