When you purchase a property, you may be a little overwhelmed by all the insurance offers related to purchasing a new property that come your way. Mortgage Insurance, Condo Insurance, Mortgage Default Insurance, Earthquake Insurance; the list goes on and on. It can be confusing and it is important to know what insurance covers what.

For instance, Mortgage Default Insurance is solely for the purpose of the lender and not to be confused with  mortgage default insurance for the consumer. Yet, you, the consumer, are responsible for the cost. If you put less than 20% down on a property purchase, you are required to pay for Mortgage Default Insurance which covers the lender if you should default on the payment of your mortgage. As well, conditions of the mortgage may require that House/Condo Insurance needs to be purchased in order to fund the mortgage as to protect the consumer and ultimately the lender from severe losses. This kind of insurance may or may not be mandatory.

Alternatively, Mortgage Life Insurance is not mandatory and is purchased to cover the mortgage if the consumer becomes seriously ill or even dies unexpectedly during the term of the mortgage. Usually, this is purchased when the owner of the house has a family or dependents that will inherit the property and would not be able to financially carry the property without the primary owner’s income. The only difference between Term Life Insurance and Mortgage Life Insurance is that the Mortgage Life Insurance is meant to pay off the consumer’s mortgage. But, depending on the policy, the money that is issued on the Mortgage Life Insurance can be designated for the mortgage only. Or, it may be available for other, more necessary expenditures. It all depends on the policy.

Mortgage Life Insurance is certainly a recommendation for those that have not yet saved up enough to be able to secure themselves with savings such as RRSPs or Pensions. Whether the consumer purchases it through a referral from their Mortgage Broker or perhaps has it already through their employment, Mortgage Life Insurance is a wise choice for anyone who wants to set their future up securely.

Top 9 Benefits of using Mortgage Life Insurance

1. Peace of mind – having Mortgage Life Insurance creates a sense of security that your loved ones will be well taken care of if you, as the main breadwinner of the family, pass on.

2. Easy to get – Mortgage Life Insurance is based on the mortgage and your age. There is a list of standard questions to answer but coverage will never be denied.

3. Mortgage paid off in the case of death – having Mortgage Life Insurance ensures an extra level of coverage, whereby any other policies that are held will be able to assist with other needs.

4. Family can stay in their home – if there is the unfortunate life event that is the death of the Mortgage Life Insurance policy holder, the mortgage will be paid off which will allow the family to stay in their home and not become displaced, causing more despair than needed.

5. It protects your family’s finances – Mortgage Life Insurance pays off the mortgage, which means that your family’s finances stay intact.

6. Lost wages – if you become seriously ill, Mortgage Life Insurance can cover your mortgage payments for a specified time period (ie up to 3 years). Unexpected life events such as a serious car accident can result in missed mortgage payments as a result of the loss of wages as you need to recover from injuries.

7. Portability – some Mortgage Life Insurance policies are portable. Which means that if you buy a new property, you will be able to transfer your Mortgage Life Insurance to a new property. Make sure you ask your Insurance Provider if the insurance they are recommending is portable. Take note that when the bank offers you Mortgage Life Insurance you will not likely be able to transfer your Mortgage Life Insurance to a new lender, thereby limiting your future financing options.

8. If you are a young buyer, your Mortgage Life Insurance premiums will be very low. Which means that this insurance is extremely affordable for a young and likely, first time home buyer.

9. Good health now results in coverage for unexpected illness later on. After illness strikes, it is more difficult to acquire life insurance.

Mortgage Life Insurance is an option that anyone with a mortgage can consider. However, it is important to know what your options are in regard to the Mortgage Life Insurance itself. Asking your Mortgage Broker for a referral to a reputable and credible Insurance Representative is paramount in finding an Insurance Broker that knows available products, that specifically fits your needs. Every individual is unique and needs an insurance product that is fashioned for their individual situation. A good Insurance Representative will be a Broker that knows what insurance products are out there as well as knows what you, the consumer, needs. The great thing about taking on Mortgage Life Insurance is that you can cancel anytime if at a later date you find an insurance product that suits you better.

Remember to take inventory of insurance products you are already signed up with. If your employer provides you with a benefits package, make sure you find out exactly how much coverage you have and if that coverage will adequately provide for your financial needs. If it does, then maybe you don’t need any Mortgage Life Insurance. On the other hand, if your current coverage won’t be enough, then maybe a good Mortgage Life Insurance policy is something to consider.

For more information regarding Mortgage Life Insurance contact any of the 2,500 mortgage professionals at Dominion Lending Centres and we’ll put you in contact with an Insurance Representative that will provide you with viable Mortgage Life Insurance options.

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

 

 

A short time ago Canada Mortgage and Housing Corporation (CMHC) changed the rules on how much down payment buyers have to have in place to buy a home worth more than $500,000. The new rules stated that you have to have 5% on the first $500,000 and 10% on the remaining balance up to $999,999. After that point, they require 20% but that’s another article altogether.

With the recent changes, they also allowed for the use of 100% offset should the home have a legal suite. This was great news for some parts of the country as housing costs increased over the million dollars in prices in Vancouver and Toronto. Does it have much effect on other parts of the country?

Recent numbers would say no. With housing prices in the west decreasing just about everywhere else but Vancouver, the average Canadian first-time buyer will not likely apply for a mortgage that is in this price range. The idea of wanting the big home as the first home is something that first-time buyers will not be doing. Even in the Vancouver markets, the buyer for the million plus property is most likely a move up buyer.

I look at my own nephews and nieces and they have bought homes closer to their lifestyles. My niece in Vancouver, who is a single young professional, chose more the loft style home and while living in 400 sq ft. is foreign to most of us, it is a choice she had to make to be in downtown Vancouver and able to walk to work.

Probably where we have seen the biggest impact of these new rules is in Ft McMurray, AB. While prices are down  in Ft McMurray, there are still a lot of homes that are in the $850,000 to $900,000 range – most built during the boom times with full legal suites.

I recently had a file that was in the $900,000 price range with a full legal suite. While the clients had the required down payment of 5% and 10% on the balance of the mortgage, the lender decided they wanted 20% down on the property even though CMHC had said yes to the mortgage. I’m sure this is happening in more than one location across Canada especially in areas where the prices have been fluctuating up and down over the last few years.

With ever changing markets and regulations, be sure to get advice from your Dominion Lending Centres mortgage professional before you buy your dream home.

LEN LANE

Dominion Lending Centres – Accredited Mortgage Professional
Len is part of DLC Brokers For Life based in Edmonton, AB.

There has been much hand-wringing about the overheated housing markets in Vancouver and Toronto. Accelerating price gains in the past year are indicative of a buying frenzy, especially in Vancouver, which is clearly unsustainable. New listings are way down, new supply is constrained, and buyer euphoria seems to be suggestive of panic fear of missing out — all of which has made housing less affordable and far out of reach of most middle-class households.

Housing affordability is a hot-button political issue, so it is not surprising that the B.C. government, facing an election in less than a year, has felt compelled to do something to dampen the fervor. Time will tell how impactful the new tax will be, but one thing is certain: Housing in Metro Vancouver will remain unaffordable for most households.

RBC estimates that owning a single-detached home in the Vancouver area would require 120 percent of a typical household’s income. In other words, unless the buyers have access to a huge downpayment (thanks, let’s say, to Mom and Dad), it is out of reach. Even condos are too expensive for average earners in Vancouver.

In the Toronto area, owning a single-detached home is also a stretch — eating up roughly 72 percent of typical household income — but condo ownership is still reasonably viable for many, requiring about 37 per cent of average household income.

But this is really no different than many other global cities. Average earners typically can’t afford to buy a home in San Francisco, New York, London or Sydney, and there is nothing the government can do to change this. Scandinavian and some other European governments built subsidized housing in metro areas, but it is doubtful that Canadians are willing to pay the kind of taxes that would require. Besides, land shortages in Vancouver and Toronto are part of the problem.

Increasing housing supply through changes in land use restrictions might help at the margin, but density and green space markedly impact the quality of life. Public transportation pressures are already endemic to Vancouver and Toronto and densification along major public transit routes is already underway.

As we have seen, it is politically enticing to blame the affordability problem on foreigners. They don’t vote in Canada, so they are easier to tax. Other countries have done it. For example, the U.K., Hong Kong, and New Zealand have imposed capital gains taxes on foreign-owned properties that are not a primary residence. Australia has limited foreign purchases to newly constructed or renovated homes, and Switzerland sets quotas for personal use only purchases.

Canada could also impose a tax on property flipping by foreigners (or anyone else) — say a capital gains tax on properties sold within two years of purchase. Or we could penalize foreign owners of vacant properties that are not properly maintained.

The fact is, as other countries have seen, this might take some of the steam out of the markets, but it will not make housing affordable for average earners in Vancouver. It just won’t.

Notably, there are early signs that the red-hot markets are cooling, at least a bit. Resales have slowed in the past few months, and housing starts have picked up. Boomers are downsizing and much more of that will come over the next decade. I believe house price inflation will slow in the next year, which should encourage many who are thinking of selling to put their properties on the market. So while housing in Vancouver and Toronto will remain expensive, the pace of appreciation is likely to slow.

Will prices fall enough to make them affordable? No. Even if prices fell 30 per cent, it would simply take them back to where they were a year or so ago. Over-extended first-time homeowners would continue to make their payments as long as they don’t lose their jobs because Canadians don’t walk away from their homes.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

 

As a Dominion Lending Centres mortgage broker, I often see in the lender’s conditions sheet a request for the lawyer to obtain title insurance. We all know that this is a measure to protect the lender and to allow for the deal to proceed if there is a delay with the title or the other lawyer.

However, did you know that title insurance is also available for the new home buyer? Why would you recommend that they spend more money when they have already had to provide a down payment, pay legal fees and moving expenses? It’s the right thing to do.

Title insurance protects you from unknown defaults in the title. This is coming up more and more now that people who bought homes in the 1960’s and 70’s are moving into retirement homes after many years in these homes. You may not realize that in 1973 Mr. Jones made a verbal agreement with his neighbour Mr. Smith to allow his garage roof to straddle the property line. Now the neighbours want you to move the roof over 6 inches to comply with their property survey. Who pays for this? Fortunately, if you have title insurance with either FCT or Stewart Title, they would.

Another very important reason to consider title insurance even when you own the property free and clear is identity theft.

There was a very enterprising fraudster operating in southern Alberta a few years ago. He would search land titles for properties in rural areas where the owners had no mortgages or liens. He would then go into a bank posing as the property owner and ask to refinance the property. If it was worth $500,000, he would ask for $200,000. He would then say that he was going to Arizona for 3 months and wanted to pay his first 3 months on the mortgage up front.

The bank rep would be impressed by the fraudster’s responsible behavior and agree to accept the pre-payment. The fraudster would put a few more deals like this and then leave well before the 3 months was up. The property owner would then be contacted by the bank asking for the late payment in month 4 and would have no idea he had been a victim of fraud. If he was fortunate enough to have title insurance, the insurer would pay for his legal representation and settle the claim with the lender.

I recommend title insurance to my clients for all the above reasons but by mentioning this to them I am also showing my clients that I want to protect them. It’s one more way Dominion Lending Centres can differentiate us from the banks.

DAVID COOKE

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

When considering buying your first home, I am sure you will have many questions. I hope to give you some insight to what lenders are most importantly looking for when qualifying for a mortgage.

1. What’s the best rate I can get?

The rate that you receive depends on a number of things. I get a lot of clients that are what I like to call “rate sensitive” this means that they are fixated on the lowest rate and don’t understand why they may not be able to get the advertised rate.

A number of those rock bottom rates you see advertised have conditions to them. For instance, they may be only for a 30-day quick close, or they may not be portable.

Some factors that determine rate are employment (self-employed, full time, part time, etc.) credit score, down payment, income and more.

Until a full application’s been received and credit has been checked you cannot be guaranteed a rate.

2. What’s the maximum mortgage amount for which I can qualify?

This, of course is going to be based on your income and liability circumstances. There are two calculations brokers use to qualify a borrower. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and strata/condo fees). Generally, this amount should be no more than 32% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,280 in monthly housing expenses. Lenders and brokers calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Your TDS ratio should be no more than 41-44% of your gross monthly income (this is dependent on credit score as well).

Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more flexible lifestyle.

3. How much money do I need for a down payment?

The minimum down payment required is 5% of the purchase price for houses under $500,000. For homes over $500,000, 10% down payment is required on the amount over $500,000. If you want to avoid CMHC mortgage insurance than 20% down payment or greater is needed.

4. What happens if I don’t have the full down payment amount?

There are programs available that enable you to use other forms of down payment. Your RRSPs can be used without being taxed if you pay back within 15 years, gifted funds from parents are also accepted. Some lenders will also allow a flex down program to be used. This is where based on qualifications you can use a line of credit towards your down payment.

5. What will a lender look at when qualifying me for a mortgage?

These are the most important factors a lender will look at when qualifying for a mortgage such as employment history, income, debt, credit history and the value/kind of property.

Most importantly, the lender is looking to make sure you can afford the home you’re wanting to purchase. The second most important thing they consider is value in the home. The lender wants to make sure that if you default on payments that they have security in the home.

Overall lenders are looking for stability. They want to see this with employment, debt repayment, and credit history. It’s important for you to have good credit and minimal liabilities. Make sure you’re never late never late on any loan or credit card payments. This shows you are responsible and less of a risk for the lender.

6. Should I go with a fixed or variable rate?

This ultimately depends on your risk tolerance. If you’re a first time home buyer you may feel a lot safer going fixed as you know what you’re expected to pay for the term of the mortgage.

However, variable rates can save you a lot of money, I mean thousands.

If you want to choose a variable rate and qualify for one (as it’s a bit tougher) just know and understand that you run the slight risk of it possibly rising while in your term if the prime rate moves up, but you can never predict this. There are much smaller penalties with a variable rate than a 5 year fixed.

Your Dominion Lending Centres mortgage professional can discuss all the differences and benefits for you.

7. What credit score do I need to qualify?

A credit score of 680 and up is a good credit score that can offer you the discounted rates. There are lenders that lend on lower credit scores but usually at a bit higher rate.

8. What happens if my credit score isn’t great?

If your credit isn’t the greatest there are ways to increase your score. Most credit reporting companies report every month. So luckily you can change your score within a few months time if you do the right things. The most important thing is to pay down your credit cards so the balance is no more than 30% of the limit.

Even better…pay off your credit card balance in full, if you can have a $0 balance owing that’s the best!

Don’t go taking out any large loans before a mortgage approval. It’s best to wait till you’ve actually got the property in your hands. You don’t want to do anything that could jeopardize your approval or have a lender pull an approval from you as they re-checked your credit prior to closing and now see an expensive car loan.

Make sure everything is up to date. No overdue collections still showing or an old bill showing up on there when you paid it ages ago but never got removed for some reason.

9. How much are closing costs?

Closing costs on average are 1.5% of the total purchase price. This is a guideline to go by, but not exact. Closing costs will cover things like inspections, lawyer fees, property transfer tax, appraisals, and title insurance.

10. How much will my mortgage payments be?

This is going to depend on many different things. The size of your down payment, the interest rate, the purchase price, amortization chose, whether or not you’re paying mortgage insurance (CMHC) and also the frequency of payments ( bi-weekly accelerated, or monthly).

If you have any other questions, please feel free to contact any of the Dominion Lending Centres mortgage professionals from all across Canada!

DANIELLE SPITTERS

Dominion Lending Centres – Accredited Mortgage Professional
Danielle is part of DLC Valley Financial Specialists based in Langley, BC.

In today’s market, variable and fixed rates are not too far apart. This makes most people think that the fixed rate is the way to go as it’s often viewed as the safest option.

Many believe that variable rate mortgages are for the daring and at any time your rate could double leaving you high and dry in the cash flow department. Many don’t realize that isn’t the truth at all.

The great thing about a variable rate is you have the option to lock into a fixed rate at any time you start feeling panicky, but I can assure you your interest rate will not be doubling overnight. Even if your rate did go up by .25% the savings you would have already earned would put you on level playing ground, or you’d possibly still be in the lead.

Over the last 40 years, variable rate mortgages have proven themselves to be the better choice for saving money and flexibility. I would also say that you’ll be given ample warning in the news and media that the Bank of Canada is planning a move on rates. When the rate does increase, I’m certain it will be slowly creeping up with just a quarterly rate increase at a time.

Where you’ll save the most money choosing a variable rate as compared to a fixed rate is with the penalty feature.

With a variable rate, you’ll only ever be charged 3 months interest at any given time you choose to break your mortgage during the term. With a fixed rate it’s always the greater of Interest Rate Differential (IRD) or 3 months interest, and believe me, those IRD penalties can be insanely large!

Statistics show that the majority of Canadians break their mortgage before the 5-year term is up, so save yourself some dough and consider going variable. There’s more to it than just the lower rate…and we here at Dominion Lending Centres can show you many mortgage options to fit your specific needs.

DANIELLE SPITTERS

Dominion Lending Centres – Accredited Mortgage Professional
Danielle is part of DLC Valley Financial Specialists based in Langley, BC

Another woeful jobs report in Canada for the month of July triggers further pessimism.Following three consecutive months of stagnant employment, payrolls fell by a much-worse-than-expected 31,000 in July as the unemployment rate increased 0.1 percentage point to 6.9 percent. Gloomily, all of the loss was in full-time employment, which fell by 71,000 from June to July, while part-time work was up 40,000.

On a year-over-year basis, total employment in Canada increased by 71,000 or 0.4 percent, with all of the growth in part-time work. Hardest hit last month were young people aged 15 to 24 whose unemployment rate hit 13.3 percent. Youth unemployment in the summer months is often quite volatile, but compared to the same month one year ago, payrolls were down 2.7 percent.

Employment fell in Ontario and Newfoundland and increased in British Columbia and New Brunswick. This was the first decline in Ontario since September 2015, where the unemployment rate currently stands at 6.4 percent. B.C.’s positive jobs performance extends an uptrend that began in the spring of last year. The unemployment rate in B.C. is the lowest in the country, at 5.6 percent, helping to explain–at least in part–the booming housing market in Vancouver and environs.

In direct contrast, the jobless rate in Alberta increased sharply to 8.6 percent, its highest level since September 1994. Alberta’s economy has been brutalized by the oil price rout, which began in June 2014 and, more recently, the Fort McMurray wildfires. Oil prices have come under renewed downward pressure in recent weeks, largely reflecting seasonal forces.

From an industry perspective, all of the decline in Canadian employment last month was in the government sector.

In another piece of bad economic news released today, Canada’s trade deficit widened to $3.6 billion in June, hitting a record high. The Bank of Canada has long been hoping that non-energy exports would help offset the weakness in Canada’s energy sector. Clearly, the Bank of Canada will remain on the sidelines for an extended period. It is unlikely they will risk cutting interest rates again given the surge in household borrowing.

A VERY WELCOME U.S. EMPLOYMENT REPORT–WELCOME FOR HILLARY

U.S. payrolls jumped in July for a second month and wages climbed, which is great news and portends  sustained growth in consumer spending in the second half of the year. Employment climbed in July by 255,000 well above the 180,000 expected job gain, which followed an upwardly revised increase of 292,00 in June.Gains in July payrolls were broad-based, including manufacturers, health-care and retailers.

The unemployment rate was unchanged at 4.9 percent as many formerly discouraged workers streamed back into the labour force. Even the broadest measure of unemployment, so-called U-6, which includes discouraged workers and those involuntarily working less than full-time, has moved down to 9.7 percent, compared to over 17 percent in late 2009. As well, the average duration of unemployment has fallen considerably.

Other indicators of the labor market are sending clear, positive signals. Jobless claims have held below 300,000 for 74 straight weeks — the longest stretch since 1973 and a level economists say is typically consistent with a healthy labour market. Job vacancies are hovering near 15-year highs, with just 1.4 unemployed workers for every available role. And the quit rate, which measures voluntary job exits, has trended upward since early 2010 suggesting improved confidence.

The long-awaited wage growth showed promising signs of acceleration last month, with average hourly earnings rising a more-than-forecast 0.3 percent. Year-over-year gains remain at 2.6 percent. Wage growth has been sluggish throughout the expansion even as unemployment has diminished. Normally, a tightening labor market prompts hiring managers to offer more pay to attract and retain skilled and experienced workers. However, a potentially more representative data series created by the Atlanta Fed. the Wage Growth Tracker, shows an uptrend in annual worker compensation growth to 3.6 percent.

Last week, the Commerce Department  reported that the U.S. economy grew at a mere 1.2 percent annual rate in the second quarter, less than half the median projection of economists. It is obvious that potential noninflationary growth in the U.S. has slowed as labour force growth diminishes owing to demographic factors. In other words, judging from the payroll figures, the U.S. economy is at or near full-employment. Second-half GDP growth in the U.S. is likely to pick up to about a 2 percent pace.

Though many have judged the likelihood of a Fed tightening move this year to be relatively low, policy makers last week did affirm that risks to the U.S. economy have eased and the job market has continued to tighten. This suggests that a boost to borrowing costs at the Fed’s next meeting September 20-21 remains a real possibility.

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.

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