June 16, 2016
Coming To Terms With Your Mortgage
When it comes to mortgage terminology, borrowers often confuse the definitions of the words "term" and "amortization". It's important to understand all of your mortgage components completely to appreciate how they can affect you both now and in the future.
The mortgage term is the block of time that a borrower commits to an agreed-upon mortgage rate and conditions with a particular mortgage lender. The mortgage amortization is the total number of years you're expecting it will take to completely pay off your mortgage. Canada Mortgage and Housing Corporation (CMHC)-insured loans have a maximum amortization of 25 years, while non-CMHC-insured loans can have a longer amortization depending on the lender.
A common mortgage in Canada has a five-year term with a 25-year amortization period. Some borrowers select a longer term – up to ten years for example – with a slightly higher interest rate if they expect to stay in their home for some time while others choose a three or four year term if they're anticipating a move within the foreseeable future, and want to avoid any prepayment penalties.
Before committing to a new loan or renewing your mortgage, let's take the time to compare different mortgage scenarios to find the one that fits both your short-term and long-term housing plans and budget. Simply pick up the phone and call to set up your no-obligation mortgage consultation!
April 13, 2016
Can Someone Actually Steal Your House?
Source: Lori Watson Mortgage Specialist Canadian Mortgage Experts - DLC
It might sound unbelievable, but it’s absolutely possible for someone to steal your house. It’s called title fraud, and it’s a problem that has been around for a while in Canada. And although exposure to title fraud is minimal compared to, say, debit or credit card fraud, the damage to its victims is considerably more severe. Title fraud is potential big money for perpetrators, and their schemes can be complex to say the least. Don’t underestimate the lengths to which they will go to cash in on a big payday.
Let’s break down title fraud, identify who is most at risk, and look at the best ways to protect yourself from having your house stolen out from under you!
Title fraud almost always starts with identity theft. When someone steals your identity, they actually become you (well not really, but as far as anyone who doesn’t know you is concerned, they are you). So once they become you, they are acting as you, the scope of the fraud starts with what you could carry out as normal business, and then grows from there with increased deception and elaborate plans.
Here are some common scenarios. The perpetrators could do any of the following:
- Using your identity, they could discharge your current mortgage and replace it with one at higher value, pocketing the difference in cash, using a bank account they created in your name, only to disappear before the loan/mortgage goes into arrears and a collection agency calls seeking repayment.
- Using fake id and forged documents, they could transfer the title of your property out of your name, register a home equity line of credit or mortgage against the title, advance the funds in cash, and disappear, leaving you with a foreclosure notice a few months down the road.
- Depending on market conditions, if it’s a real seller’s market, they could even potentially sell your property sight unseen, close the transaction, and skip town before the duped buyers show up at your house in a moving truck, ready to take possession.
The scary thing is, as the victim of identity theft and/or title fraud, there is legal precedence set that as the mortgage was taken out in your name and it was done so as a legal transaction, the onus is on you to prove that you were the victim of fraud. Until you do so, you are responsible for the repayment of the debt or it will damage your credit score.
As in the case of someone fraudulently selling your house out from under you, there is legal precedence set where the new buyers could actually be awarded possession of your house, because you were the victim of identity theft and title fraud, they weren’t. As far as everyone else is concerned, the buyers executed a perfectly legal transaction. It falls on you to prove otherwise!
Who Is Most At Risk?
The more equity you have in your property, the more likely you are to be targeted. Let’s say your property is worth $450k, and you owe $150k on your mortgage — there is potential access to $300k of equity. However, as the maximum refinance amount in most cases is 80% of the property’s value, in this case $210k would be accessible. And as most lenders limit the amount of cash you can refinance out of a property to $200k, this is a perfect target.
Properties that are owned clear title (no mortgage or line of credit registered against the home) are considerably more susceptible than properties with a mortgage because there is no mortgage to discharge. Essentially, there is one less hurdle for the fraudster to register a new mortgage or transfer the title.
Unfortunately, if we have to label an age group that is most at risk, it would be the older generation. Seniors are more likely to own their properties clear title and are less savvy about identity theft and may take longer to realize something is going on.
Okay, if your heart is beating a little faster now, don’t worry, it will be okay. Here are some practical steps you can take to protect yourself!
The first line of defence to prevent title fraud is to protect yourself from identity theft. The financial consumer agency of Canada has some good information that outlines the basics. But a lot of it is common sense: keep your ID close, don’t disclose your personal information to strangers on the phone, and if something smells fishy, make sure to investigate before proceeding!
Now, in order to protect yourself from title fraud directly, you can purchase something called title insurance! If you have recently purchased or refinanced your property, chances are you already have it. With the increasing amount of mortgage fraud, a lot of lenders make title insurance a mandatory condition of lending you money. This is a really, really good thing.
There are two types of title insurance available from a few different providers, offered directly from your lawyer’s office. The first is title insurance that covers the lender in case of title fraud, and the second covers the lender and you. It’s smart to go with the more comprehensive policy that covers you!
Title insurance is relatively inexpensive and covers you as long as you own the property (even if you discharge your mortgage). It can be purchased at any time, so if you aren’t sure if you have title insurance, might be worth a look through your mortgage documents. And if you can’t make heads or tails of them, take them to your mortgage broker and they will be happy to work through everything with you.
What to Do if You Suspect Fraud?
If you suspect or find out that you are the victim of title fraud, you should do the following:
- Contact the Canadian Anti-Fraud Centre, at 1-888-495-8501 or firstname.lastname@example.org.
- Report the situation to the police.
- Report the fraud to both credit reporting agencies Equifax and TransUnion.
- Contact your provincial land registry and let them know.
- Keep all documents and record the exact time you became aware that you were a victim.
March 23, 2016
Mortgages: The Lowdown on Down Payments
There's a new down payment rule now in effect, valid as of February 15, 2016, that increases the amount of the down payment necessary to buy a home selling for more than $500,000.
The minimum down payment on a home was previously a straight five percent of the purchase price, however as of December 2015 homebuyers must now apply a minimum of ten percent down on the portion of their purchase that's over $500,000.
The increase in down payment was most likely designed to cool down the hottest real estate markets in Canada that have average prices topping $500,000. For example, here's the difference in down payment for a $700,000 property:
5% down payment on first $500,000: $25,000
10% down payment on remaining $200,000: $20,000
Total minimum down payment on a $700,000 home: $45,000
The buyer in this example therefore needs to come up with an extra $10,000 for the down payment compared to the system before the change.
While first-time buyers will feel the pinch most, existing homeowners will typically already have that amount covered through their home equity. Questions about the new rule, or about your home financing in general? Simply pick up the phone and call – there's no obligation at all!
December 30, 2015
Would You Borrow More If It Cost You Less?
As mortgage rates continue to hover in record low territory, a recent survey shows that dropping rates even further wouldn't necessarily encourage more debt*.
The survey concluded that more than 9 in 10 Canadians - 93 percent - said they wouldn't take on more debt obligations if the Bank of Canada cut interest rates.
If homeowners could refinance to a lower interest rate, the prudent thing to do would be to keep mortgage payments the same and redirect a greater percentage of the payments to go straight towards the loan principal. This way, the debt will be paid down faster, saving hundreds if not thousands of dollars in interest over the term of the loan. While the chart above shows that many homeowners understand this concept, actually working out the specifics of refinancing requires an in-depth look at your current mortgage situation, and an accurate calculation of any costs associated with re-financing.
Please call today for a no-obligation mortgage review to find out if there's a way for you to manage your loan more efficiently, and save you money!
October 28, 2015
Mortgage Consumer Habits
Canada Mortgage and Housing Corporation (CMHC) recently released its Mortgage Consumer Survey* that revealed, among other findings, that the services of mortgage brokers are becoming more in demand.
The CMHC survey tallied mortgage broker market share by segment and found:
- First-time and repeat homebuyers are twice as likely to use the services of a broker than homeowners who are renewing or refinancing (49 percent versus 24 percent).
- Mortgage broker market share is trending upwards for most market segments, especially among repeat buyers, where broker market share increased from 32 percent in 2012 to 42 percent in 2015.
- Mortgage brokers are especially popular among first-time buyers, with broker market share reaching 55 percent in 2015 compared to 48 percent in 2014.
- Broker share among renewers has remained stable at around 21 percent.
Looking further into the habits of mortgage renewers, the survey found:
- 60 percent renewed before the scheduled date, mostly to avoid a perceived increase in rates.
- 49 percent are striving to pay off their mortgage sooner by having their mortgage payment set higher than the minimum required payment, while 32 percent have either made a lump-sum payment or increased their regular payment – or both – since last renewing their mortgage.
June 10, 2015
Fixed vs. Variable: The Choice Is Yours
The "Fixed versus Variable Mortgage" quandary is a mortgage option for which there's no one right answer for everyone.
Although variable interest rates are typically lower than fixed mortgage rates, variable rate products are understood to be the more volatile of the two choices as rates could increase (or decrease) at any time without warning.
Here are some points to think through when considering your decision:
Your risk tolerance. Are you able to accept a fluctuating interest rate and still sleep at night? While variable mortgages have proved to be more financially beneficial in the long run over the past few years, this trend may or may not continue.
Your financial stability. Is your income and potential for increased earnings such that you could still comfortably cover your mortgage should rates increase through a variable mortgage?
Where you are in your home-buying history. A first-time homebuyer's budgeting experience is completely different from a long-time homeowner's. New homeowners may feel more comfortable foregoing the possible benefits of a variable mortgage for the stability of a five-year fixed-rate mortgage. This 'settling in' period can allow a new homeowner to find their financial equilibrium.
Please call today for more information on fixed and variable rate mortgages, and to find the best mortgage solution for your specific needs.
April 15, 2015
Ready To Renew?
The Canadian Association of Accredited Mortgage Professionals conducts an annual survey to review trends in the housing market*. In addition to being of value to mortgage professionals, it's also interesting for homeowners to find out how other homeowners approach their mortgages. Here are some of the findings of the latest report.
There are currently about 9.62 million homeowners in Canada, 5.64 million of whom have mortgages and may also have a Home Equity Line of Credit.
For homes that were purchased during 2014 up to the time of the Fall 2014 survey, 84 percent have mortgages and of those, 76 percent chose fixed interest rates and 88 percent of the mortgages have amortization periods of 25 years or less.
The average contracted amortization period for homes purchased during 2013 or 2014 is 21.2 years. This group of buyers expects that on average they will repay their mortgages in 17.5 years, which is 3.7 years (or 17 percent) shorter than the contracted period.
As far as what kind of rates mortgage holders are paying upon renewal, more than three-quarters (78%) of borrowers who had recently renewed a mortgage saw their interest rate drop by an average of 0.81 percentage points from their rate prior to renewal.
Is your mortgage coming up for renewal in the next few months? Please call today to make sure you have the time to consider the very best renewal options possible!
* The Annual State of the Residential Mortgage Market in Canada survey was conducted by Bond Brand Loyalty (formerly Maritz Research, a national public opinion and market research firm) for CAAMP, during October 2014.
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