Mortgage Summer Refresh & HELOC Changes

Yes I know I’ve been bad lately with blogging. Believe me I’m not saying that mortgage news has been slow rather the opposite. Lots on the go and there is talk of more Government changes related to mortgages and HELOCs (aka home lines of credit). Presently, if you wanted to buy or refinance your mortgage and home of credit can be combined up to 80% LTV (loan to value). In other words, you can receive a combination of mortgage and line of credit up to 80% of the market value of your home. Hence the majority of that 80% on a home mortgage could heavily consist of a home line of credit. In an effort to lower Canadian debt the Government is implementing new mortgage rules. It appears we will still be able to attain the 80% LTV financing, through max 65% heloc and 15% mortgage. Interest only payments and no amortization schedule will remain.

Frankly, I’ve never been a fan of helocs. Taking on a home line of credit needs to be calculated and the rationale needs to make sense (ideally short term). Helocs in my opinion are too easily accessible and once loaded they harm your credit score. It is unrealistic for most people to pay off a 100k loaded heloc unless you refinance your home, sell or win the lotto. So yes, I partially welcome new Government change. This change is supposed to take place later this year and we await the final Government guideline.

If you have any mortgage questions let me know.

North East Mortgages in the news: "Brokerage benefits from RBC?"

Wow Vernon Clement Jones from MortgageBrokerNews, just wrote an article about North East Mortgages and Terry Kilakos (Founder and President).

"Try not to snicker, but one brokerage has found a way to piggyback off of RBC’s success, relocating to a storefront the bank only recently vacated after 30 years.

“I don’t think they knew it was being leased to me,” said Terry Kilakos, a chartered Mortgage Broker and owner of VERICO North East Mortgages in Montreal. “All’s fair in love and war, though, and this location is not only great because it`s a corner lot on a high-traffic area, but it’s been identified as a bank for decades in the minds of consumers, which should help grow our walk-in traffic.”

That’s usually why banks vacating old branch locations avoid selling to other financial services players.
In fact, they frequently rely on sales agreements holding the buyer to a moratorium on that kind of business for as long as five years. Kilakos is leasing from the new owner of the stone-clad building and hasn't entered into any agreement with the bank.

He moves into the leased 3,000 sq.-ft. spot at the heart of Montreal`s Saint-Laurent borough on April 1."

To read more check out the rest of the article...

How can I buy after bankruptcy?

A huge part of being a mortgage broker is being an advisor and mortgage educator to my clients. This is especially true with first time home buyers.  Buying your first home is an important decision and some careful planning should go into it. After all it may take a couple years to save up for the down payment or stabilize one’s career.

For example, I met with a couple last week whose goal was to buy in the Chateauguay area in the next 3-5 years. Both are hard working salaried people. The catch was that one had a bankruptcy and the other had a collection. First we had to tackle the bankruptcy, meaning the client was discharged from bankruptcy but had no new credit history. I advised that a secured credit card be opened to start building credit history. As mentioned in previous blogs, the goal here would be to establish two major trade lines, with limits of $1200 each and two years of positive history with no late payments. In terms of my other client with the collection, we had to ensure that the collection was paid off ASAP and that she continues to pay the rest of her cards on time. It would not take long for her credit score to bounce back. Ideally, once the collection is paid off the banks like to see stable and no lates for a good 1-2 years as well.

This is a good example of mortgage planning and something that I will monitor with these clients over the next several months. We need to ensure that the secured credit card is reporting properly on the credit report. It will take the clients’ at least two years to rebuild credit but fortunately they are not in a rush as they also need to save up their down payment.

I welcome any mortgage questions or comments. Have a great week everyone.

What’s my buying capacity? Maximum versus reasonable

Probably the number one question I get asked as a mortgage broker is “Hey Mark, what’s my buying capacity?” As a first time buyer or even a repeat buyer your buying capacity is mission critical. With my weekly column in the Hudson Gazette and my blog montrealmortgageblogger.com, I’ve received quite a few calls from home owners that are over their heads with mortgage and debt payments. It’s always good for the ego to see our maximum buying capacity, but does it make sense to stretch it that high? I will tell you from several horror stories that I’ve seen the past three weeks, clearer it’s not worth it.  

Your buying capacity is based on a couple mortgage calculations, one in particular referred at TDS or Total Debt Service ratio. Typically all Canadian banks use this calculation. This calculation takes a look at your annual expenses namely school and municipal taxes, home heating, and your personal debt load and is divided by your gross income (combined if you are a couple and a portion of your rental income, if any) multiplied by one hundred. On an insured purchase meaning your putting less than 20% down payment, your TDS can go up to 44%. Depending on the lender a refinance the TDS can range from 40-44% whether you are refinancing conventionally (up to 80% of market value of your home) or insured (85% of market value).

First and foremost if you are buying or refinancing mortgage planning is invaluable. You will not always get that detailed service at the branch-level at a bank. That statement is not intended knock the banks but one needs to be careful and budget conscious. A good mortgage broker can help you establish a plan and keep you on budget. What I mean by that is take a much closer look at that TDS calculation. TDS is a crude ratio and does not take into account a lot of your other annual expenses such as insurance, school tuition for the kids, food, gas, etc. With that in mind you can create a reasonable buying capacity. Lastly, when taking your income into account typically I look solely at base incomes and if appropriate exclude or take an average of your over time, bonuses and commission. I treat those as sugar because they can all disappear or fluctuate tremendously in this economy.

If you have any questions or would like to share a mortgage experience, I’d love to hear from you. Have a great week.

Doing some work with the Montreal ReStore

Helping to organize the ReStore today. Love the cause but need some volunteers please

Choosing the right fixed mortgage

If you looking to buy or refinance in the near future then it's not a bad idea to take a closer look at what mortgage term your considering. The big banks have spent a lot of advertising dollars to attract us to sign on for shorter term mortgages (1, 2, 3 and even 4 years). I'd argue given current economic circumstances this may not be the ideal strategy.

Clearly no one knows where the economy and rates are headed but there is some consensus that recovery will arrive in the next two years or so. If you buy into a short term fixed rate then you may be re-signing as rates begin to rise again. That may not be ideal. Currently the seven and ten year fixed rates are very attractive and not much higher than the five year fixed rates. Clearly it’s important to think ahead whether you’re planning on hanging onto the house for the next five years or more.

More and more Canadian statistically break their mortgage before their mortgage term is up. Here are some penalty tips to keep in mind. If take a seven or ten year fixed and you sell or refinance your home five years into your term then penalty to break would only be three months interest penalty. This rule applies to all banks at its part of the Interest Act of Canada. If you think you will break your term before five years then it may be wise to take at least a five year term or less.

If you have a mortgage, debt-related questions or would like to share an experience, feel free to contact me.  Have a great week.

Mortgage conference in Montreal

@ a mortgage conference today in Montreal hosted by all the lenders I work with. I try to attend these things as much as I can. Believe it or not the mortgage industry changes regularly, maybe not daily but often! It's also a good way to spend time with my banks and the people behind the scenes that make my mortgages happen