Should you transfer your Mortgage or Not Guide!!!

So everyone wants to get a good deal and once we have a good deal, we want an even better deal and mortgages are no exception. For mortgages, have a good or excellent deal tends to be about getting as low of an interest rate for our mortgages at a specific time.

Now of course the banks are not going to just let you walk away and one of the best way to keep you from moving is penalty. So the first thing we need to figure out is what is the potential penalty if i decide to transfer my mortgage to another lender?

Here are 3 things we will need to figure out what would our penalty look like:

1. Mortgage Term. Is your mortgage fixed or variable and for how long? 3 years? 5 years?

2. pre-payment options. You can ask your bank for this and they should be able to tell you. Usually its the greater of interest rate differential or 3 months interests for fixed and just 3 months interests for variable. But it can vary from bank to bank. So make sure to confirm with your bank what are your mortgage pre-payment options.

3. Maturity date. The closer it is to your maturity date the less expensive your penalty will be.

For example:

Let’s say you currently have a $500k mortgage at 6.5% 5 year fixed 25 years amortization with 1 year left till maturity and your mortgage is with one of the big banks and you want to transfer to another bank for lower rates to save on interests and to make your mortgage payment smaller.

So we now know 2 things; one is the mortgage term which is 5 year fixed and maturity date which is one more year till maturity. So the only thing left to solve is pre-payment options and this is where we will find out if its worth it to transfer or not…

Bank#1: pre-payment option is the greater of 3 month interests or $500 plus 1 month interest

So in this case the pre-payment penalty is only 3 month interests which is about $8100 to $8200

Bank#2: pre-payment option is the greater of interest rate differential or 3 month interest

In this case the interest rate differential is the one we are going to use which is the remaining interests on the remaining term. So in this case, the pre-payment penalty is going to be $32,000. Now that is alot of money for penalty.

So how much are we saving if we decide to transfer out to another bank for lower rate? Lets say the rate is at 4%.

We are going to save around $15,000. So Bank#1 is the only option that would make sense for you to transfer as you are still saving around $7000 after paying for all the penalties.

Hope that answer your question.

Bad Credit Guide:

If you have bad credit then this guide is for you. First thing we need to do is define what is bad credit. Bad credit is someone that has low credit score like 550 to 600 and/or if you have any messages on your credit report like bankruptcy, collections and consumer proposal that shows lack of credit management.

So what do you need to do to get a mortgage if you have low credit scores or worst bankruptcy, collections or consumer proposals?

1.Low credit score:

-this one is a 2 step process. The first step is to find out what is causing the low credit score and the second step is to find out how you can fixed it. If you want to improve your credit score as fast as possible, it would be a good idea to know how does your credit score work and which part you can work on to improve your credit score the fastest.

The 5 areas Equifax look at for your credit score:

Payment history 35%

credit utilization 30% ( Ps try to keep it below 30 to 40% of your credit limit to improve your credit score faster)

credit history 15%

public records 10% ( type of credits you have)

inquiries ( number of inquiries)

2. Collections and Consumer Proposals:

-If you have either collections or consumer proposals on your credit report, it is not good news. But it’s not the end of the world. You just need time or willing to take a higher rate than average.

-So if you want the lowest rate possible and you got time to wait then this is what you need to do:

1. pay off all the debts that’s on your collection or consumer proposal
2. re-establish your credit by opening 2 trade lines or credit products with a major financial institution
3. You will need 2 years history after your 2 credit products like a credit card and overdraft has been opened

-if you dont want to wait then their are b lender programs just for you called the bruised credit mortgage program to get the mortgage you need. But the rate is going to be higher and you will need to pay broker and lender fee.

3. Bankruptcy:

-Bankruptcy is the worst message you can have on your credit report. But its the same process with increase difficulty. Instead of needing 2 years to get your credit re-establish, we will need 6 to 7 years.

legend:

collection is when you are not paying your debts but you have the ability to pay

consumer proposal is when you have too much debts. So you talk to your creditors to reduce your debt amount or else no one is getting paid

bankruptcy is when you give up paying your debts and the court needs to determine what can be used to pay your debts. Bankruptcy happens alot for business failures.

The canadian economy is not doing so well right now with high unemployment rate still, non-existent GDP growth for the past couple of years, 35% tariff from our neighbor in the south and people getting laid off left right and centre not for performance issues entirely but because companies and corporations wants to save up money for dark times ahead and for the next technological step which is AI.

Yes its unfair. But we live in an unfair world and if you are someone that was unfortunately let go but you still have a mortgage to pay. What are your options until you find a new job?

1. Talk to your lender/bank:

-First thing you should do is contact your lender or bank to see what they can help you with, since most banks/lenders will have a mortgage assistance program to help borrowers that ran into financial issues and hardships.

-But the assistances rarely goes for an entire year

2. Own savings:

-Simple here. you are using your own money to pay for your mortgage.

3. Non-Payment Mortgage Options:

There are 2 types of non-payment mortgage options. One is for someone younger than 55 and the other is for someone that is older than 55.

a). Option 1: Non-payment option for younger than 55

-you need to have at least 35 to 40% equity in your property

-its a B lender so rates will be slightly higher and you will need to pay lender and broker fee which can be added into the mortgage

-the mortgage process is the same as if you were still employed. But stronger focus on your exit plan and overall story

-only for owner occupied properties and yes mortgage payments are required but interests still accrue in the mortgage

b). option 2: non-payment option for older than 55

-only for owner occupied properties

-only need to be to show you can afford to pay property tax, heating costs and condo fees ( if applicable) to maintain property

– Its like a line of credit on your property without the need to repay balance if you don’t want to. But interests will continue to accrue.

-great for seniors to supplement their income as expenses keeps going up but retirement income tends to stay fixed and for gifting down payments to next of kin for their home purchases

I hope you find this blog helpful and if you have any questions feel free to contact me:

Frankie Ho

647-982-0130

frankie.ho@calibermortgage.ca

Non-Resident Mortgage Guide:

Are you someone who wants to buy a property in Canada for investment purposes or for someone like your kids to live in while they stay in Canada to study or work? But you don’t live and work in Canada?

Does that mean you would not be able to qualify for a mortgage? Not entirely you can qualify for a mortgage if you are a non-resident, but what do you need to be considered a non-resident of Canada for qualifying purposes?

So first thing we need to do is determine what is considered a non-resident and here are the conditions to be considered as one:

1. What is your status in Canada?

– you will need to be either a Canadian permanent resident or citizen

2. Down Payment Requirement?

-you will need a minimum 20% to 35% down payment for non-resident mortgages

3. type of income matters…

– We ONLY accept foreign employment or salary income not business income. So if you are a foreign business owner then sorry this program isn’t for you.

4. country of origin matters..

– The country you are from matters a lot because if you are from a country that is sanction then we might not be able to do your mortgage or at least makes it more difficult.

5. Give yourself more time because…

-Make sure to give yourself more time to qualify for this type of mortgage because the lender will need more time to translate and verify your documents as it’s from another country. Ps the lender might also need you to find and pay a translator for your documents if necessary.

-Give yourself 60 to 90 days + before closing/maturity date

I hope you find this guide helpful and if you have any questions please feel free to contact me:

Frankie Ho

647-982-0130

frankie.ho@calibermortgage.ca

Business Owner/self employed Guide:

Are you a business owner or a self employed individual just like me? Then this guide is for you:

1. There are 3 different approaches for each type of business and income:

a). Unincorporated businesses like partnerships:

• A lot of unincorporated business owners like sole proprietors or partnerships  do not register their businesses and don’t have a dedicated business account for their business income and expenses too instead it is usually mix into their personal account making it hard to identify which transactions are personal and which are for their business.
• However, that is usually not a problem. As most lenders don’t need to see if you have registered your business(es) and have a business account. Instead, lenders or banks will use your 2 most recent years T1 General’s net business income for qualifying purpose and will need a minimum 2 years business history.
• Also if you don’t have 20% down payment for your mortgage, don’t worry about it as there are business for self ( BFS) programs for both insured ( less than 20% down payment) and conventional (more than 20%) mortgage deals.
• Example of unincorporated businesses include self employed driving instructors, realtors, construction workers and cooks.

b). Incorporated businesses like corporation:

• Incorporated businesses are actually corporations where the business owners will have something called the article or certificate of incorporation to proof the businesses have been registered and a dedicated business account to keep track of all business incomes and expenses and to separate personal and business transactions to make things easier to manage and organize.
• Just like unincorporated businesses, lenders will need minimum 2 years business history. But unlike our unincorporated businesses counterpart, we don’t use T1 Generals instead we are going to use financial statements prepared by an accountant for qualifying instead.
• There are BFS programs for borrowers that have and don’t have 20% down payments.
• Examples of incorporated businesses tends to include realtors, travel nurses and IT professionals like software developers

BOTH A AND B ARE FOR BORROWERS WHO DIDNT WRITE OFF TOO MUCH OF THEIR BUSINESS INCOME OR/AND  DRAW/WITHDRAWAL ENOUGH SALARY OR DIVIDEND OR BOTH INCOME TO BE ABLE TO QUALIFY THEIR MORTGAGE WITH A PRIME LENDER LIKE SCOTIABANK.

BUT WHAT HAPPEN IF YOU WRITE OFF TOO MUCH OF YOUR BUSINESS INCOME OR DIDNT TAKE OUT ENOUGH SALARY OR DIVIDEND INCOME TO BE ABLE TO QUALIFY FOR A MORTGAGE WITH A PRIME LENDER? WHAT OPTIONS DO YOU HAVE NOW?

YOU WILL NEED TO USE AN ALTERNATIVE ALSO CALLED B LENDERS OR EVEN PRIVATE MORTGAGES. SO WHAT DO B LENDERS USE TO QUALIFY FOR YOUR MORTGAGE?

C). B lender for both A and B businesses:

• alot of borrowers don’t like to use b lenders for their mortgages because b lenders charge a higher interest rate and need to pay both broker and lender fees.
• But they offer more flexibility and don’t need to look at your tax documents for qualifying purposes. Instead, b lenders tend to use your bank statements with supporting documents like invoices to determine your business income and expenses for qualifying your mortgage instead.
• You will need 20% down payment for b lenders.
• FUN FACTS more and more borrowers are turning to b lenders to qualify for their mortgages

I hope this guide has been helpful to you and if you have any questions feel free to contact me:

Frankie Ho

647-982-0130

frankie.ho@calibermortgage.ca

First Time Home Buyer Guide:

Buying your first home can be a very stressful, anxious and time consuming process and experience from house hunting, to getting financing and moving in after your closing date. But before that you will need to make sure you can complete this step as smooth and fast as possible which is getting financing or getting a mortgage. Here are 5 things for first time home buyers to consider to make the financing process easier and less stressful….

1. Are you a Canadian permanent residence or citizen?

• In Canada right now, there is something called a non-resident speculation ban in effect right now and this is what it does. If you are not a Canadian permanent resident or citizen you will need to pay a 25% non-resident tax on top of your down payment and closing costs.
• As a result, I would recommend you to wait till you get a Canadian permanent residence or citizenship before you buy a home or buy your home with a spouse who is a Canadian permanent resident or citizen.

2. Not all income are the same

• Not all incomes are the same. Some income require at least 2 years history for the lender to accept the income for qualifying purpose. For example, business income, investment income and variable compensation like bonus or commission would require 2 years history for qualifying purpose
• Other type of income will only require couple of months or specific conditions met to be able to use the income for qualifying purpose like salary or rental income

3. Get your source of down payment ready

• Make sure to have records of your source of down payment ready as all lenders will collect, review and audit your source of funds for your down payment and closing costs. Most lenders will ask for 90 days transaction history with your name and account number on it.
• Banks will only accept gifted funds from immediate family members like your parents, grandparents and siblings. So if you have friends that is willing to loan you funds for your down payment. It will not be accepted by the lenders.
• Treatment for own source down payment, gifted funds and borrowed funds are different. Make sure to ask a mortgage professional to see which type of funds makes the most sense for you.

4. Debts can make or break your deal

• Having some debts are acceptable, but having too much debts can break your deal
• There are 2 types of debts; revolving and installment debts. Revolving debts are your credit card or unsecured line of credit balances and installment debts are your auto lease or loans. If you have to choose, try to pay off your revolving debts as they have a bigger impact on your ability to borrow more compared to installment debts for similar or same debt amounts.

5. Having a good credit score matters

• Before buying a home, please make sure you have a good credit score of 700 or higher to get better rate and condition exceptions
• If you have any messages on your credit report like consumer proposals, collections or bankruptcy, please contact me to discuss your mortgage options.

Hope this helps. If you have any questions please feel free to contact me:

Frankie Ho

647-982-0130

frankie.ho@calibermortgage.ca