Steven Burrows
Phone: (905) 338-3721 Email Steven

WHY CHOOSE TO MAKE LESS THAN A 20% DEPOSIT ON YOUR MORTGAGE.


Less is more when it comes to a down payment? 

Bizarre but maybe true. Find out why a 20% home down payment may not be worth it in the article below.  I hope you have a fantastic weekend….

 

 It's tough to feel financially prudent when buying a house these days. That's why an increasing number of first-time buyers are saving a down payment of 20 per cent or more. In doing so, they avoid having to buy mortgage default insurance which, in the case of a house price of $487,095 (the national average) bought with a 10 per cent down payment, would be 3.1 per cent or $13,590. This premium is generally added to the mortgage, which means more interest to pay.

 

It certainly sounds financially prudent to make a 20-per-cent down payment where possible, but this isn't always the case. In fact, you may save money both now and in the future by making a slightly smaller down payment and taking on the cost of mortgage default insurance.

 

Listen up if you're concerned about the new mortgage lending rules that were announced last week and will take effect on Jan. 1, 2018. When making a down payment of 20 per cent or more, the new rules require that you be able to qualify for a mortgage at the greater of the five-year benchmark rate published by the Bank of Canada, or the original contractual rate plus two percentage points. An easier path to a mortgage may be to make a smaller down payment.

 

To even propose this seems bizarre. "The story has been that you're just throwing money away with mortgage insurance," said Mike Bricknell, a mortgage agent with CanWise Financial. What this thinking ignores is the way today's mortgage market discriminates against people who make down payments of 20 per cent or more. They may pay a fair bit more for a mortgage than someone with a high-ratio mortgage (down payment of less than 20 per cent) both now and on renewal.

 

A lender dealing with a client who has a sub-20 per cent down payment can take comfort from the fact that the loan is covered by government-backed insurance that is paid for by the borrower. A conventional mortgage (20 per cent or more) can be insured as well, but by the lender. All in all, a high-ratio mortgage is preferable from the lender's point of view and often results in a lower mortgage rate.

 

Mr. Bricknell has lately found that rates on five-year fixed rate mortgages are about 0.45 of a percentage point less for high ratio as opposed to conventional mortgages. Maybe your lender can do better than that. If not, consider this example of how a down payment less than 20 per cent can pay off.

 

We start with a $450,000 house and a buyer with a 20-per-cent down payment already saved. With a conventional mortgage amortized over 25 years, Mr. Bricknell figures this person could get a five-year fixed rate mortgage at 3.29 per cent. That means a monthly payment of $1,758.

Now, let's see what happens when this borrower makes a 19-per-cent down payment. A smaller down payment means borrowing a bit more, and thus more interest over the life of the mortgage. Also, mortgage insurance will be required at a cost of $10,206. All of this nets out to a monthly payment of $1,743, with the mortgage insurance premium included. How is this possible? Mr. Bricknell said it's because the high-ratio borrower gets a mortgage rate of 2.84 per cent.

 

There's a stress test for high-ratio mortgages as well, but it's marginally less onerous than it is for conventional mortgages because you only have to be able to handle the Bank of Canada benchmark rate, currently 4.89 per cent. Thus the high-ratio mortgage in Mr. Bricknell's example would have a qualifying rate of 4.89 per cent and the conventional mortgage would be at 5.29 per cent (the client's actual rate plus two percentage points).

 

The two mortgages outlined by Mr. Bricknell are pretty much a wash right now when compared on cost. Looking ahead, the high-ratio mortgage offers the potential for lower interest rates when it's time to renew your mortgage. This assumes that lenders will continue to look more favourably at high-ratio mortgages.

 

Mortgage industry data shows that even as house prices increased from the early 2000s through the past few years, the percentage of people making down payments of less than 20 per cent has declined to 39 per cent from 54 per cent. If the rationale for this is to save money and be financially prudent, a rethink is required. Depending on the rates offered by your lender, a slightly smaller down payment could save you money in the long run.

 

Contact me for more details if need be. If you or someone you know is thinking of buying another home, please contact me. Your referrals are greatly appreciated!

 


New Mortgage Rules Starting Jan. 1st, 2018


CHANGE 1: Qualifying Rate Stress Test To All Non Insured Mortgages

Non insured mortgage consumers (buyers with a 20% or greater down payment) must now qualify using a new minimum qualifying rate. The minimum rate will be the greater of the 5 year benchmark rate published by the Bank Of Canada (BOC) OR the lender contractual mortgage rate +2.0%.

HOW DOES THIS AFFECT YOU WITH A DOWN PAYENT OF 20% OR MORE?

The biggest impact will be on the amount you will be able to qualify for. Now you must qualify at the benchmark rate, which is the higher of the (BOC) Bank Of Canada rate (currently 4.99%) OR your lenders rate plus 2.0%. This applies to all terms, fixed and variable.

FOR EXAMPLE:
 

Mortgage Amount If Your Contract Rate Is 3.44% Benchmark Rate 5.44%
(3.44% + 2.0%>BOC)
Monthly Payment $1985.00 $2427.00
Minimum Income* $70,000 $85,000
 
Mortgage Amount If Your Contract Rate Is 2.77%** Benchmark Rate 4.99%
(2.7% + 2.0%<BOC)
Monthly Payment $1832.00 $2324.00
Minimum Income* $65,000 $81,500


* The chart above is based on GDS RATIO (Gross Debt Service Ratio) and a 25 year amortization.
** In order to qualify for any variable rate, as in the past, you must qualify at the BOC rate.

These stress test rules only apply to residential mortgages (dwellings with 1-4 dwellings under one legal description: houses, duplexes, tri-plex, and four plex).
Any unit over 4 units is considered commercial and the stress test DOES NOT APPLY.

 


Mortgage Rates


 RATE SHEET 

Special Rate Mortgages


Terms Posted
Rates
Payment
  Per $100k
Our Rates Payment
  Per $100k
Savings
6 Months 3.14% $480.46 3.10% $478.39 $2.07
1 Year 3.04% $475.30 2.89% $467.62 $7.68
2 Years 3.24% $485.65 2.54% $449.96 $35.68
3 Years 3.44% $496.11 2.89% $467.62 $28.49
4 Years 3.89% $520.07 2.89% $467.62 $52.45
5 Years 4.99% $581.04 2.94% $470.17 $110.86
7 Years 5.30% $598.80 3.69% $509.35 $89.45
10 Years 6.10% $645.76 3.74% $512.02 $133.74
 Variable   2.70% $457.99 2.21% $433.65 $24.33
Prime Rate 3.20%
Please Note: Payment per $100K and possible savings shown above are based on a 25-year ammortization. Rates are subject to change without notice and the rate you receive may vary depending on your personal financial situation. *OAC E&OE. Please reply to this email and I will be happy to provide you with greater detail and determine the best rate available for you.

 

Please note that rates shown above are subject to change without notice. The rates shown are  posted rates and the actual rate you receive may be different, depending upon your personal financial situation. “Some conditions may apply. Rates may vary from Province to Province. Rates subject to change without notice. *O.A.C. E.& O.E.” Check with your Mortgage Professional for full details & to determine what rate will be available for you.

Mortgage Rates have been provided by different Mortgage providers such as:
Homefree Mortgages, Dominion Lending Centres, Mortgage Alliance.

 Contact Steven Burrows for Details: 


The New "Stress Test" Guideline


Under a new Liberal Government Ruling, qualifying to buy a home, refinancing your home or even looking to renew and shop for competitive rates when your mortgage is up for renewal is about to get much more difficult! 

Announced on October 17th, 2017, the new "Stress Test" guideline will affect even those home buyers with 20% down or those who have 20% saved in equity. 

That’s right…. even if you have saved and saved for a hefty down payment or have a large amount of equity in your home, this new rule can still affect you! 

Obtaining access to the equity in your own home for home improvements/renos, rentals, debt consolidation, funds for education…etc. will soon be harder to do. 

Act Now! It’s Time for a MORTGAGE FINANCIAL CHECK- UP! 

If your mortgage is coming up for renewal or if you were planning on withdrawing some of the equity out of your home for renovations etc., NOW is the time to review your financial situation! 

The new B-20 Rules will take effect January 1st, 2018 – and most lenders will tighten their purse strings prior to this date!

 

If you are looking to buy, sell, invest or refinance, contact me asap to ACT NOW before the new year!

 


The Non-Resident Tax


 

Please note: Once the government has passed this legislation the NRST will be effective as of April 21, 2017.
 
Binding agreements of Purchase and Sale signed on April 20, 2017 or before are not subject to the NRST. On Thursday, April 27 this item will be finalized in the Provincial budget.
Non-Resident Speculation Tax
The implementation of the Non-Resident Speculation Tax is subject to the approval of the Legislature.
 
Overview
 
The non-resident speculation tax (NRST) is a 15 per cent tax on the purchase or acquisition of an interest in residential property located in the Greater Golden Horseshoe (GGH) by individuals who are not citizens or permanent residents of Canada or by foreign corporations ("foreign entities") and taxable trustees.
 
The NRST applies in addition to the general land transfer tax in Ontario.
 
The GGH includes the following geographic areas: Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York.  Refer to the map at the end of the document.
 
Effective Date
 
Upon the enactment of legislation, the NRST will be effective as of April 21, 2017.  
Binding agreements of purchase and sale signed on or before April 20, 2017 are not subject to the NRST.
 
Entities Subject to the NRST
 
The NRST applies to foreign entities or taxable trustees who purchase or acquire residential property in the GGH.
 
foreign entity is either a foreign national or a foreign corporation.
 
A foreign national, as defined in the Immigration and Refugee Protection Act (Canada), is an individual who is not a Canadian citizen or permanent resident of Canada.
 
A foreign corporation is a corporation that is one of the following:
  • Is not incorporated in Canada;
  • Is incorporated in Canada but is controlled in whole or in part by a foreign national or other foreign corporation, unless the shares of the corporation are listed on a Canadian stock exchange; or
  • Is controlled directly or indirectly by a foreign entity for the purposes of section 256 of the Income Tax Act (Canada).
For the purposes of the NRST, a taxable trustee is a trustee that is one of the following:
  • A foreign entity holding title in trust for beneficiaries, or
  • A Canadian citizen, permanent resident of Canada, or a corporation holding title in trust for foreign entity beneficiaries.
Types of Property Subject to the NRST
 
The NRST applies to the transfer of land which contains at least one and not more than six single family residences.  Examples of land containing one single family residence include detached and semi-detached houses, townhouses and condominium units.  In a situation involving the purchase of multiple condominium units, each unit would be considered land containing one single family residence.  Examples of land containing more than one single family residence that are subject to the tax include duplexes, triplexes, fourplexes, fiveplexes and sixplexes. 
 
The NRST does not apply to other types of land such as multi-residential rental apartment buildings with more than six units, agricultural land, commercial land or industrial land.
 
The NRST applies on the value of the consideration for the residential property. If the land transferred includes both residential property and another type of property, the NRST applies on the portion of the value of the consideration attributable to the residential property. For example, if the purchase price of the transaction is $1,000,000 and contains one single family residence with a value of the consideration of $400,000, and commercial land with a value of the consideration of $600,000, the 15 per cent NRST would only apply to the $400,000 portion.
 
General Application
 
The 15 per cent NRST applies to the value of the consideration for a transfer of residential property if any one of the transferees is a foreign entity or taxable trustee.
 
For example, if a transfer of residential property is made to four transferees, one of whom is a foreign entity that acquires a 25 per cent share in the land, the NRST would apply to 100 per cent of the value of the consideration for the transfer.
 
Each transferee is jointly and severally liable for any NRST payable. If a foreign entity or taxable trustee does not pay the NRST, the other transferees will be required to pay the tax. This applies even if the other transferees are Canadian citizens or permanent residents of Canada.
 
The NRST does not apply when a person purchases or acquires residential property as a trustee of a mutual fund trust, real estate investment trust or specified investment flow-through trust.
 
The NRST applies to unregistered dispositions of a beneficial interest in residential property. This includes purchases and acquisitions of residential property where section 3 of the Land Transfer Tax Act is applicable.
 
Exemptions
 
An exemption to the NRST is available to a foreign national who receives confirmation under the Ontario Immigrant Nominee Program ("nominee"). To qualify for this exemption, the foreign national must be confirmed under the Ontario Immigrant Nominee Program at the time of the purchase or acquisition and the property must be used as the foreign national's principal residence.
 
An exemption is also available to a foreign national who is conferred the status of "convention refugee" or "person in need of protection" ("refugee") under the Immigration and Refugee Protection Act at the time of the purchase or acquisition.
 
A foreign national who has a spouse (as defined in the Land Transfer Tax Act), who is a Canadian citizen, permanent resident of Canada, "nominee" or "refugee" is exempt from the NRST if the foreign national jointly purchases residential property with that spouse.  
  
However, the exemption does not apply if the Canadian citizen, permanent resident of Canada, "nominee", or "refugee" and his or her foreign national spouse purchased the property with another foreign national.  For example, if three parties purchase a property as follows:
  • one Canadian citizen and his or her foreign national spouse; and
  • a third party who is a foreign national,
the exemption would not apply and NRST would be payable. 
 
Rebates
 
A rebate of the NRST may be available in the following situations:
  • The foreign national becomes a Canadian citizen or permanent resident of Canada within four years of the date of the purchase or acquisition;
  • The foreign national is a student who has been enrolled full-time for at least two years from the date of purchase or acquisition in an "approved institution", as outlined in Ontario Regulation 70/17 of the Ministry of Training, Colleges, and Universities Act; or
  • The foreign national has legally worked full-time in Ontario for a continuous period of one year since the date of purchase or acquisition.
In order to be eligible for the rebates, the foreign national must exclusively hold the property, or hold the property exclusively with his or her spouse.  The property must also have been used as  the foreign national's (and if applicable their spouse's) principal residence for the duration of the period.
 
The rebate will be paid with interest, calculated at the prescribed refund rate under the Land Transfer Tax Act. 
 
Supporting documentation will be required to substantiate all applications for rebates.
 
Tax Avoidance and Offences
 
All transfers of land in Ontario are subject to audit.
 
Anti-avoidance provisions will be enforced to ensure the NRST is reported and paid as required. This includes examining circumstances where Canadian citizens or permanent residents of Canada, as taxable trustees, hold property in trust for a foreign entity or are trustees where a beneficiary may be a foreign entity.  This also includes preventing the use of multiple conveyances to avoid the NRST.
 
Failure to pay the NRST as required may result in a penalty, fine and/or imprisonment.
 
Payment of the NRST
 
NOTE:  All transfers registered on or after April 21, 2017 must contain a statement expressly acknowledging that consideration has been given to the application of the NRST.  Registrants are required to provide one of the following three statements:
 
The Non-Resident Speculation Tax does not apply to this transfer because the binding agreement of purchase and sale was signed on or before April 20, 2017.
 
The Non-Resident Speculation Tax does not apply to this transfer because (registrant to provide explanation for non -application).
 
The Non-Resident Speculation Tax applies to this transfer and has been paid to the Ministry of Finance, as confirmed by Receipt # *******
 
For paper registrations, the applicable statement is to be inserted in paragraph 5 of the Land Transfer Tax Affidavit.  For registrations processed through Teraview, the applicable statement is to be inserted in Land Transfer Tax statement 9151 (Other remarks and explanations), which is found under the Explanations Tab.
 
Taxpayers reporting unregistered dispositions of land to the Ministry of Finance (MoF) must also expressly acknowledge in a covering letter that consideration has been given to the application of the NRST and whether or not it is payable on the reported transaction.
 
Electronic  Registrations
 
For an interim period, Ontario's electronic registration system (operated by Teranet) will not be able to collect the NRST. During this interim period, to ensure compliance with the legislation, affected purchasers/transferees should pre-pay both the Land Transfer Tax and the NRST directly to the MoF's office in Oshawa.  Once the MoF accepts the pre-payment of the taxes, the transfer may be registered electronically without further payment of Land Transfer Tax or NRST.
 
The Ministry will provide a letter confirming receipt of NRST with a receipt number.
 
Registrations made at Land Registry Offices
 
NRST payable on registrations that must be made at a Land Registry Office must be pre-paid directly to the MoF.  If the transfer is subject to NRST, both the Land Transfer Tax and NRST should be pre-paid directly to the MoF.
 
The transfer will be stamped with a direction to the Land Registrar that no further Land Transfer Tax is payable at registration and the MoF will also provide a letter confirming receipt of NRST.
 
Dispositions / Unregistered transfers
 
If a transfer will not be registered on title, a Return on the Acquisition of a Beneficial Interest in Land form, along with the payment of the Land Transfer Tax and the NRST must be submitted to the MoF within 30 days of the transfer of land.  For more information, see Land Transfer Tax and the Treatment of Unregistered Dispositions of a Beneficial Interest in Land
 
How to pre-pay the Land Transfer Tax and the NRST to the MoF
 
The following documentation must be submitted to the MoF:
 
For transfers to be registered and unregistered transfers / dispositions:
  1. Cheque for the Land Transfer Tax and the NRST (certified, if not drawn on the solicitor's trust account), made payable to the "Minister of Finance"
  2. Copy of the Agreement of Purchase and Sale, with all schedules attached
  3. Copy of the draft Statement of Adjustments (if applicable)
  4. If the value of the consideration is based on the fair market value of the land, any appraisals or documentation that is evidence of the fair market value of the land
  5. Any additional documents as may be required to determine the value of the consideration
In addition, for transfers to be registered:
 
6. Authorizing or Cancelling a Representative form(s), completed by each  transferee
7. Copy of the Document "in preparation" or three copies of the Transfer/Deed if    registration is done on paper
8.If registration is done on paper, two completed Land Transfer Tax Affidavits.
 
Please submit the required documentation to the following address, either by mail, courier or in person:
 
Ministry of Finance
Compliance Branch
33 King Street West, 3rd Floor
Oshawa ON L1H 8H9
 
Additional information:

If you have administrative or technical questions about the NRST, contact:
 
Ministry of Finance
Land Tax Section
33 King Street West
Oshawa ON L1H 8H9

 


‘Spousal Separation Program’


A few lenders have a special ‘Spousal Separation Program’  that you need to know about. How does this work? 
 

- One spouse can purchase up to 95% LTV (Loan to Value) from the other on title, allowing them to remain in the family home.  Biggest misconception I hear is that 80% LTV is the max.

- Separation agreement must clearly state the division of assets from the matrimonial home.

- Appraisal is required.

- Purchase and Sale agreement is required

- Must income qualify as per any other regular mortgage.

 


Articles


More Rates Now Hinge on Credit Scores

 March 31, 2017   Robert McLister 

Never before has your credit score had such an impact on your mortgage rate.

Ever since the banking regulator (OSFI) jacked up capital requirements on default insurers, and linked its capital formula to credit scores, more and more securitizing lenders have:

a) set different rates for different credit score ranges; and/or

b) raised their minimum credit scores for given mortgage products.

At some lenders, borrowers with, say, a 640 credit score are offered rates that are 1/4 point worse than someone with a 750 score. Many retail channel lenders set their internal discounts based on credit scores as well.

On conventional mortgages, the magic number seems to be 720. On scores below that, lenders’ extra insurance costs start climbing more meaningfully, and some of them pass that through to borrowers.

It all means that we as an industry are going to have to better educate our clients about this trend—because, according to a recent TransUnion poll, many folks don’t get it.

Over half (56%) of credit card holders say they don’t even understand how their credit score is compiled.

And 4 in 10 borrowers don’t grasp the importance of making more than their minimum monthly payments. Cardholders who pay more than the required minimum each month are less risky borrowers in general. And that shows up in their credit scores. And, while the credit bureaus don’t disclose their exact scoring algorithms, those formulas seem more sensitive than ever to debt utilization and payment timeliness.

 

New Ontario LTT Rebate

First-time home buyers are now eligible to get $4,000 off the Canadian dream and we need your help to help spread the word. 

Effective January 1st, 2017, Ontario has doubled the land transfer tax rebate for first-time home buyers from $2,000 to $4,000. That means that a first-time home buyer will pay no provincial tax on homes sold for $368,000 or less. 

Ontario REALTORS® lobbied hard for the improved rebate and we're very proud to promote it to first-time buyers. 

www.FirstHomeRebate.ca 

To help promote this new rebate we've created a website www.FirstHomeRebate.ca with an informative video and calculator that can help you figure out how much tax relief you can claim on your first home. 

 

CMHC Hiking Insurance Premiums
 

 Homebuyers with less than 20% down are going to pay more.

 CMHC is hiking mortgage insurance rates for the third time in three years. Premiums are jumping up to 0.65 percentage points on the highest LTV mortgages, effective March 17, 2017. Here’s the new premium table:

 But high-ratio hikes aren’t the only story. Premiums on mortgages between 65.01 and 80% LTV are soaring too.

 At 80% LTV, the most popular LTV for those refinancing, the premium is almost doubling to 2.40%. That will push up interest rates among lenders who currently pay this premium for their customers in order to securitize the mortgage.

 CMHC had a conference call this morning about the increases. Here were some takeaways:

•It says these premium hikes are due mainly to OSFI’s capital requirement changes, which took effect January 1.

•OSFI’s new capital requirements include a formula based on LTV, credit score, location and other things. Oddly, this formula disproportionately targets (increases the costs for) mortgages in the conservative 65.01 to 80% LTV bracket.

•Bulk insurance premiums have increased similar to the low-ratio transactional premiums, says CMHC.

•The insurer says it has communicated bulk pricing criteria to lenders (although the securitizing lenders I’ve spoken with cite considerable obscurity in bulk pricing, which has led many of them to transactionally insure their mortgages instead)

•Roughly two-thirds of CMHC’s business is in the 95% LTV category, said CMHC, and about 4% of its transactional insurance is used for low-ratio customers.

 Steven Mennill, Senior Vice-President, Insurance, said that CMHC is “Not doing this to affect housing markets…” and doesn’t think it will have a significant effect on competition.

 Mortgage finance companies would vehemently disagree. Higher premiums have already limited competition in the low-ratio market where MFCs must charge rates that are up to ¼ point higher on 80% LTV deals (compared to last fall).

 Big banks, which don’t need to rely on insured mortgages for securitization purposes, now have more pricing power than ever—at least since the dawn of NHA-MBS. And no one should blame banks. They’re not writing these rules. But from a consumer standpoint, Joe Borrower is getting the shaft, which leads me to the legislated purpose of the National Housing Act:

 “The purpose of this Act, in relation to financing for housing, is to promote housing affordability and choice, to facilitate access to, and competition and efficiency in the provision of, housing finance, to protect the availability of adequate funding for housing at low cost, and generally to contribute to the well-being of the housing sector in the national economy.” (emphasis ours)

 The recent decisions by the Department of Finance, OSFI and CMHC appear to twist or flout these essential provisions of the National Housing Act. Policymakers argue that such measure are warranted for the stability of the market. But unlevel competitive playing fields rarely create liquidity, consumer savings and stability, not long-term.


CONTACT ME FOR FURTHER DISCUSSION ON THE IMPACT FOR YOU.

WHETHER YOU ARE THINKING OF BUYING, SELLING, INVESTING OR
REFINANCING, I CAN HELP. CONTACT ME TODAY!

______________________________________

 

 



 


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Maintain Seniors Independence
A guide to home adaptations. There is a direct relationship between aging and disability. While most older people carry out their daily activities with little effort or difficulty, for some, the activities of daily living become a challenge. The ability to maintain control over one’s immediate surroundings and to function freely in an environment that is safe, secure and appropriate is linked on the one hand to the characteristics of the individual (physiological, psychological) and on the other hand to the characteristics of the environment in which that individual lives (economic, social and housing). For many seniors, living independently at home is a much less costly and much more welcome alternative to living in an institution. The design of much of our housing stock, however, does not allow for the increasing disabilities that sometimes accompany aging.
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