ARE YOUR CLIENTS REALLY, TRULY PRE-APPROVED FOR A MORTGAGE?

Beware of the term PRE-APPROVAL!

Here are some facts:

• Pre-approvals mean something different to every mortgage professional and lending institution
• For mortgage approvals both the applicants AND the property they are buying need to be adjudicated and approved before funds are advanced…detailed borrower information and documents are typically required for a full pre-approval, however property info is seldom available. For this reason a full blown adjudicated pre-approval is very difficult to obtain
• Many lending institutions will not adjudicate pre-approvals, and many others charge rate premiums to do so
• Applicants’ assets, liabilities, and income need to be verified in writing before a mortgage can be approved…many mortgage agents don’t even pull credit or verify employment and down payment before issuing a pre-approval
• For a high ratio mortgage (less than 20% down), both the lending institution AND the default insurer must approve the lender and the property….default insurers will only adjudicate live applications
• Rate holds and pre-approvals are different everywhere….rate holds seldom include any form of verification or viewed documents
• In a rising interest rate environment, a previous pre-approval may no longer be acceptable due to excessive debt service ratios based on the current higher rate
• For very long closings over 90-120 days, assets, liabilities, and income may need to be fully verified again prior to closing
• Approved mortgage amount is always based on the lesser of the purchase price OR the appraised value…any shortfall from an appraisal needs to be made up by client

We here are Dominion Lending Centres can help sort through this mine field, and provide you with meaningful feedback and information for your mortgage needs.

TOM NEEB

Dominion Lending Centres - Accredited Mortgage Professional
Tom is part of DLC Home Capital Solutions based in Hamilton, ON.

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What is a Mortgage Broker?

One thing Canadians have in common is that most of us are paying off a mortgage.

The mortgage market can sometimes be confusing. There are a vast array of choices – open, closed flex down, equity take-out, cash back, and of course the rates themselves. While we would not attempt to try to muddle through the intricacies of insurance or investments without expert help, we will often go it alone when it’s time to get a mortgage.

We will call a variety of banks and other lenders in an attempt to get the best rate. After numerous phone calls you get back to your original lender, and they agree to meet your best rate. Why should you have to spend so much of your time finding the best rate? If you are not quick enough the rate may change before you lock it in.

There is a solution to this problem – use the services of a mortgage broker. 85% of Americans use mortgage brokers today but only 33% of Canadians do; mainly because they do not know what a mortgage broker is and what they do.

What is a mortgage broker? A mortgage broker is an individual who represents a mortgage brokerage firm. The brokerage has access to over two dozen banks, trust companies, insurance companies and other lenders at their fingertips. By dealing with these lenders on a day-to-day basis, we have access to wholesale lending rates which can save you thousands of dollars. It should also be noted that the majority of mortgage brokerages are not owned by the lenders they represent. Brokers work for the borrower, not the lenders. Mortgage software allows us to scan all the lenders for the best rate for the term you are looking for in seconds. In addition we will advise you on the best options for your own personal situation. Newlyweds with no cash can purchase a house with 0% down under certain conditions. Some lenders will even give you 1-5% cash back. Wouldn’t that come in handy for buying curtains and furniture for your new home?

Now this sounds great! Everyone could use an expert to save them money, but how much does it cost? The majority of mortgages are arranged at no cost to the consumer. The lenders pay a finders fee to the brokerage firm for finding and arranging the mortgage. If you have an unusual credit history which involves more work, a set fee would be agreed upon before we start on the application.

Why would you choose to use a mortgage broker instead of your bank?

Lower Interest Rates

Wholesale mortgage rates are discounted an average of 1.20% over what the bank will offer you. A 1% interest discount on a $150,000 mortgage can save you more than $7900 in interest costs over a 5 year term.

Best Mortgage Options

By shopping the lenders’ market we can find you the best options for your particular situation. Banks are limited to the products carried by their institution.

Bank Loan Officers are employees of the bank

Mortgage agents work for you, the borrower.

Fast Service

A mortgage broker can often get your mortgage approved in a day. In addition we can meet you at your home, office, or wherever it is convenient for you.

As you can see, mortgage brokers offer convenience, service and great rates. It’s no wonder more and more Canadians are choosing to call a mortgage broker when it is time to renew their mortgages. As the #1 mortgage brokerage company in Canada, we here at Dominion Lending Centres are ready to help you!

DAVID COOKE

Dominion Lending Centres - Accredited Mortgage Professional
David is part of DLC Westcor based in Calgary, AB.

The Truth about the Cash Back Mortgage

We often see ads from the major lenders offering cash back incentives on their Mortgage products.

Gone are the days where a Cash Back Mortgage could be used to facilitate a purchase without the required minimum of a 5% down payment. Cash Back incentives are now made available for other enticing uses; New Furniture and Appliances, Renovations and the other great hook…..Apply the cash back portion directly on your Mortgage for a better effective rate!

Just a few weeks ago, I was emailed an offer from a major lender who shall remain unnamed;

“NEW PROMO … Cash back for purchases. Effective 5 year Rate as low as 2.62%….”

First off, the Cash Back Mortgages are offered at a premium (higher) compared to other standard rates available. The ploy suggested by the lender here is pay it straight down on principle and lower your effective interest rate over time.

READ THE FINE PRINT

The kicker here and warning to all….there IS a catch! If you are to break the mortgage midterm, whether to sell your home or refinance, you not only have to pay the interest penalty, you also have to return the Cash Back portion to the bank. Even if you used it to pay down your Mortgage. This is in the fine print on the websites and in your contract for you to see.

I have seen this happen to a few people that I know and it ended up being a $10,000 – $20,000 factor in their decision not to move or change careers!

There are other more cost effective ways to obtain financing in better programs such as Purchase Plus Improvements, or Home Equity Lines of Credit (HELOC), that expose you to less future risk and still provide you with flexibility to accomplish your goals.

This is why you need a certified Mortgage Broker – like the fine folks at Dominion Lending Centres – working for you. We know of these programs and can offer advice on which ones most suit your situation.

KRIS GRASTY

Dominion Lending Centres - Accredited Mortgage Professional
Kris is part of DLC Canadian Mortgage Experts based in Surrey, BC.

THINKING OF DIVORCE? 

Getting a divorce is one of the most stressful times in a persons life, trust me I know. When I went through my separation I was terrified of what would happen to myself and my children. Would I have to move, could I support myself and my children, how would they be impacted? Luckily I made it through that time in my life and came out the other side ok. I eventually developed a great relationship with my ex and we were able to co-parent our kids in a respectable way. Now my ex and I consider each other friends and I would be there to help him out if he ever needed me even though our kids are now adults.

When I was in the middle of the process, I found it hard to see the light at the end of the tunnel. Deciding what to do with the marital home and the joint debt is one of the most daunting tasks you undertake when going through a divorce but believe it or not there is a mortgage solution that can help tremendously. Typically lenders will not exceed an 80-85% LTV on a refinance or a debt consolidation but when it comes to divorce or separation they make an exception. We have a special spousal buyout mortgage that will allow the marital home to be refinanced up to 95% LTV so the spouse staying in the home can pay out joint debt and equity owed to their partner without having to sell. It is a fairly simple process that just requires a notarized separation agreement and an appraisal.

If you are considering separation and want to have a better understanding of your financial situation, contacting a Mortgage Broker is a smart first step. This service is free and can save you many sleepless nights. Many brokers (like myself) also work with divorce accountants who specialize in this area and can be a real asset for anyone going through separation and divorce. Divorce lawyers are not accountants and may not be aware of the financing options available to their clients. We can work with your lawyer to help reach a reasonable solution to financial issues in divorce.

In the end, you will get through this and there are many professionals out there who's job it is to make this as easy as possible. Take advantage of the resources in your community, educate yourself and remember to take care of yourself and your family.

WHAT IS A “GIFTED” DOWN PAYMENT?

A “Gifted” Down Payment is very common for first time buyers. Essentially, a buyer’s family member (usually very nice, warm and loving parents) will offer up money to go towards the down payment. Often this is done because their son or daughter doesn’t quite have enough funds saved up for the full 5% down payment. Or, because they want to make sure their child has enough money to make up 20% for a down payment to avoid CMHC premiums.

All that is required for documentation is a signed Gift Letter from the parents, which simply states that the money does not have to be re-paid, and a snapshot of the son or daughter’s bank account showing that the gifted funds have actually been transferred.

A gifted down payment is viewed as an acceptable form of down payment by almost all lenders. Talk to your Dominion Lending Centres Mortgage Professional to make sure that your lender accepts “gifts” as an acceptable down payment.

JEFF INGRAM

Dominion Lending Centres - Accredited Mortgage Professional
Jeff is part of DLC Canadian Mortgage Experts based in Surrey, BC.

THAT “DISCOUNTED RATE” MAY NOT BE SO DISCOUNTED, AFTER ALL

Not long ago, someone contacted us wishing to refinance their mortgage. They presently held a mortgage from one of the big banks. When this homeowner originally obtained her mortgage, the bank offered her a discounted rate of 2.99%. It matured in July of 2016, however, when they contacted us at Dominion Lending Centres, they wanted to refinance to improve their cash flow because of recent major renovations. The mortgage was over $600,000.

At first thought, an Interest Rate Differential (IRD) penalty might seem to be so small because of the effective rate of 2.99%, that only a 3 month penalty would apply to break their existing mortgage. Wrong. Because the rate for the original mortgage was discounted from 4.64%, 4.64% was used when calculating the IRD penalty. So, instead of paying $5,157 dollars, the client was told they had to pay over $23,000 in order to break their mortgage with the bank.

A mortgage broker-channel lender, and there are many, uses the contract, or effective rate, when they calculate the IRD penalty on fixed rate mortgages, unlike the banks. Because they use the actual contract rate, the penalty would have been the lower one in the example above. An amortization scenario would determine if breaking the existing mortgage would be worth it by seeing the crossover point in time for making up the difference in savings. In the case above, it was not worth breaking, and the client had to wait until their mortgage matured.

The banks have, in recent years, implemented a new way of registering mortgages to assist in these situations. They often now register the loan as a collateral charge loan rather than a mortgage. This allows the bank to refinance the home loan on a house without a penalty if the client needs extra cash in the future. The disadvantage to this is that in order to break the loan agreement, even at maturity, the client either has to pay a lawyer or title insurance company to help break the loan agreement, costing approximately $600-$1000. Aware of this, at renewal, the bank can price the renewal rate accordingly, as they are aware that the client must pay this fee in order to leave the bank.

When purchasing a home or renewing or refinancing, it pays to ask details about pre-payment privileges and the costs associated with discharging your mortgage before the maturity date, as well as how the loan is going to be registered, ie. as a regular mortgage or a collateral charge loan.

DANIEL LEWCZUK

Dominion Lending Centres - Accredited Mortgage Professional
Daniel is part of DLC Parato Mortgage Group based in Burlington, Ontario.

The Devil Is In Five of the Details

I have something shocking to tell you. Mortgage brokers are human. Gasp!! But wait, so are lawyers, lenders, legal assistants and everyone else who is involved with your mortgage transaction. Why do I choose to draw attention to this and ruin your day you ask? It is so you will have a checklist of the things to confirm after the mortgage transaction closes so you are not gobsmacked down the road by a nasty surprise.
1. Property taxes– Even if you are certain that you indicated your preference to the mortgage specialist and the lawyer and anyone else who would listen, you really should take a minute to confirm just who is paying them. If you have changed from the Tax Installment Payment Plan (TIPPS) to having the lender collect them on your behalf, then you may be facing a tax shortfall at the end of the year which will now require you to double on the tax portion of the payment to make up the difference.
2. Payment Frequency – There is a misconception that choosing the biweekly or weekly frequency will pay your mortgage down faster and this is very untrue. If your goal is to pay your mortgage down quickly, you must choose the accelerated option for either to get the benefit.
Let’s go over the numbers real quick. Based on a $300,000 mortgage with a 25 year am and a rate of 2.49%.
Monthly $1,342.41 – 25 years to repay
Biweekly $619.23 – 25 years
Biweekly accelerated $671.20 – 22.4 years
Weekly $309.54 – 25 years
Weekly accelerated $335.60 – 22.4 years
As you can see, the accelerated payments are higher, which means more money goes directly to the balance of the mortgage. The benefit of the weekly or biweekly non-accelerated is mainly that it would line up with your pay schedule for the payments.
3. Mailing Address – If you live in one of the smaller areas and your mailing address is different than your home address, you should make sure your lender knows so you will receive your annual statement and other communication.
4. Phone number – Again, make sure the lender has your new number if you have moved to a new community.
5. Online Mortgage Systems – Most lenders now have an online system where you can opt to make extra payments or just check your balance. Something kind of nice about managing your mortgage on a Saturday in your pj’s while sipping your coffee.
All of the above can be handled in one phone call. That’s right – one! Call your lender a week or two after your mortgage closes to allow their system to register your new mortgage. Some lenders send a nice welcome letter after funding which will outline all of the above in which case all you have to do is take a minute to review. Of course, here at Dominion Lending Centres, we can help you with your mortgage, by getting organized for all these details surrounding your mortgage. Give us a call!

THE 10 DON’TS OF MORTGAGE CLOSING

Okay, so here we are… we have worked together to secure financing for your mortgage. You are getting a great rate, favourable terms that meet your mortgage goals, the lender is satisfied with all the supporting documents, we are broker complete, and the only thing left to do is wait for the day the lawyers advance the funds for the mortgage.

Here is a list of things you should NEVER do in the time between your financing complete date (when everything is setup and looks good) and your closing date (the day the lender actually advances funds).

NEVER MAKE CHANGES TO YOUR FINANCIAL SITUATION WITHOUT FIRST CONSULTING ME. CHANGES TO YOUR FINANCIAL SITUATION BEFORE YOUR MORTGAGE CLOSES COULD ACTUALLY CAUSE YOUR MORTGAGE TO BE DECLINED.

So without delay, here are the 10 Don’ts of Mortgage Closing… inspired by real life situations.

1. Don’t quit your job.

This might sound obvious, but if you quit your job we will have to report this change in employment status to the lender. From there you will be required to support your mortgage application with your new employment details. Even if you have taken on a new job that pays twice as much in the same industry, there still might be a probationary period and the lender might not feel comfortable with proceeding.

If you are thinking of making changes to your employment status… contact me first, it might be alright to proceed, but then again it might just be best to wait until your mortgage closes! Let’s talk it out.

2. Don’t do anything that would reduce your income.

Kind of like point one, don’t change your status at your existing employer. Getting a raise is fine, but dropping from Full Time to Part Time status is not a good idea. The reduced income will change your debt service ratios on your application and you might not qualify.

3. Don’t apply for new credit.

I realize that you are excited to get your new house, especially if this is your first house, however now is not the time to go shopping on credit or take out new credit cards. So if you find yourself at the Brick, shopping for new furniture and they want you to finance your purchase right now… don’t. By applying for new credit and taking out new credit, you can jeopardize your mortgage.

4. Don’t get rid of existing credit.

Okay, in the same way that it’s not a good idea to take on new credit, it’s best not to close any existing credit either. The lender has agreed to lend you the money for a mortgage based on your current financial situation and this includes the strength of your credit profile. Mortgage lenders and insurers have a minimum credit profile required to lend you money. If you close active accounts, you could fall into an unacceptable credit situation.

5. Don’t co-sign for a loan or mortgage for someone else.

You may have the best intentions in the world, but if you co-sign for any type of debt for someone else, you are 100% responsible for the full payments incurred on that loan. This extra debt is added to your expenses and may throw your ratios out of line.

6. Don’t stop paying your bills.

Although this is still good advice for people purchasing homes, it is more often an issue in a refinance situation. If we are just waiting on the proceeds of a refinance in order to consolidate some of your debts, you must continue making your payments as scheduled. If you choose not to make your payments, it will reflect on your credit bureau and it could impact your ability to get your mortgage. Best advice is to continue making all your payments until the refinance has gone through and your balances have been brought to zero.

7. Don’t spend your closing costs.

Typically the lender wants to see you with 1.5% saved up to cover closing costs… this money is used to cover the expense of closing your mortgage, like paying your lawyer for their services. You might think that because you shouldn’t take out new credit to buy furniture, you can use this money instead. Bad idea. If you don’t pay the lawyer… you aren’t getting your house, and the furniture will have to be delivered curb side. And it’s cold in Canada!

8. Don’t change your real estate purchase contract.

Often times when you are purchasing a property there will be things that show up after the fact on an inspection and you might want to make changes to the contract. Although not a huge deal, it can make a difference for financing. So if financing is complete, it is best practice to check with me before you go and make any changes to the purchase contract.

9. Don’t list your property for sale.

If we have set up a refinance for your property and your goal is to eventually sell it… wait until the funds have been advanced before listing it. Why would a lender want to lend you money on a mortgage when you are clearly going to sell right away (even if we arranged a short term)?

10. Don’t accept unsolicited mortgage advice from unlicensed or unqualified individuals.

Although this point is least likely to impact the approval of your mortgage status, it is frustrating when people, who don’t have the first clue about your unique situation, give you unsolicited advice about what you should do with your mortgage, making you second guess yourself.

Now, if you have any questions at all, I am more than happy to discuss them with you. I am a mortgage professional and I help my Dominion Lending Centres clients finance property every day. I know the unique in’s and out’s, do’s and don’ts of mortgages. Placing a lot of value on unsolicited mortgage advice from a non-licensed person doesn’t make a lot of sense and might lead you to make some of the mistakes as listed in the 9 previous points!

SO IN SUMMARY, THE ONLY THING YOU SHOULD DO WHILE YOU ARE WAITING FOR THE ADVANCE OF YOUR MORTGAGE FUNDS IS TO CONTINUE LIVING YOUR LIFE LIKE YOU HAVE BEEN LIVING IT! KEEP GOING TO WORK AND PAYING YOUR BILLS ON TIME!

Now… what about after your mortgage has funded?

You are now free to do whatever you like! Go ahead… quit your job, go to part time status, apply for new credit to buy a couch and 78″ TV, close your credit cards, co-sign for a mortgage, sell your place, or soak in as much unsolicited advice as you want! It’s up to you!

But just make sure your mortgage has funded first.

Also it is good to note, if you do quit your job, make sure you have enough cash on hand to continue making your mortgage payments! The funny thing about mortgages is, if you don’t make your payments, the lender will take your property and sell it to someone else and you will be left on that curbside couch.

Obviously, if you have any questions, please get in touch with us here at Dominion Lending Centres!