WHAT’S YOUR BEST MORTGAGE RATE?

General Konstantin Seroshtan 29 Sep

Often calls from new clients start with “I’m looking for help with a mortgage. What’s your best rate?”

I’m pretty sure that I frustrate some of those clients with my reply which is “It all depends”.

The short explanation is that the best rate for each client truly depends on their particular circumstances.

Prior to October 2016 this question could be met with a very simple answer. Generally speaking, we could find the best rate fairly easily. If the client was putting down less than twenty per cent, we could search out the best insured rate. If they were putting down more than twenty per cent, we could search for the best conventional rate.

In October 2016 several important changes were implemented that changed which mortgages are considered insurable and which mortgages are not.

Four of the main changes were:

  • Properties with a purchase price of over $1,000,000 could no longer be insured
  • Mortgages with an amortization of more than twenty-five years could no longer be insured
  • Rental properties could no longer be insured
  • Refinances could no longer be insured

So how do these changes affect your interest rate?

These changes effectively created three different groups of interest rates:

When you see interest rates advertised on TV or online, most often the insured rates are featured. These rates are the lowest of the three rate groups because you pay an insurance premium (this is added to the mortgage) so the lender will not suffer a loss if down the road the client defaults on their mortgage.

Insurable rates apply if you are putting down more than twenty per cent but meet the other criteria required to qualify for an insured mortgage: purchase price is under $1,000,000, your amortization is twenty-five years or less, and you are not buying a rental property.

Because you do not have to pay an insurance premium, even though the rate is slightly higher you pay less interest over the long haul and your mortgage balance is lower at renewal as you are not adding the insurance premium to the amount you borrow.

I’ve run the calculations many times to show clients that in this circumstance even though the rate is higher it costs them less in the long run.

The third rate group applies if you are buying a rental property, refinancing, or needing an amortization longer than twenty-five years (you must have at least twenty per cent down for the longer amortization). The higher (perceived) risk to lenders is reflected by slightly higher interest rates.

To further complicate the best-rate conversation, there are intricacies within each of these rate categories.

For instance, if you are self-employed and we are using a specific stated income program, some lenders will increase the rate slightly.

If your application falls into the insurable group and you are putting thirty-five or more per cent down, some lenders use a sliding scale and reduce your rate slightly to reflect the amount of equity you have in your home.

If you are wanting to use a Purchase Plus Improvements mortgage to renovate your new home right away, some lenders do not offer this as an option.

Other factors to be aware of:

Yet another twist is that many lenders offer a no-frills mortgage option which is usually priced .05 per cent lower than their other mortgages.

Several lenders offer cash-back mortgages. They will provide a lump sum up front for you and this is reflected in a slightly higher rate. It is crucial to know that for most of these products if you try to pay these mortgages back even one day before your renewal date they will require that the full cash-back amount be repaid.

This means that you are locked in for the full term or have to pay a hefty amount to break your mortgage.

From time to time lenders come out swinging with bargain basement interest rates. It is important to know that these rates often come with strings attached, or clauses that may cost you more in the long run.

The no-frills mortgages may be the right fit for you, but it is important that you understand what saving that .05 per cent might cost you in the long run. Some of these products come with a bona-fide sales clause or higher penalty if you need to pay the mortgage in full before the renewal date. Some are not portable to another property.

Future client service is a feature that it is hard to put a price on. One financial institution comes out every spring advertising the lowest of the low interest rates. They are notorious for missing closing dates, poor service after the mortgage has been advanced, and their penalties are significantly higher than other mortgage lenders. As well, from time to time they choose not to renew mortgages – not because of anything the client has done but because they are not actively in the mortgage business at the time.

There are on-line brokerages that offer low low rates as well. I’ve heard from several clients that the rate they were offered when their approval arrived was not what was initially discussed.

If you are looking for a mortgage, the lowest rate is not always the best rate.

Arguably more important is to work with someone that takes the time to understand your unique situation and treats you as a human being. If you are looking for help with a mortgage and wondering which rate group you fit into, I am happy to review your options with you.

Let’s chat!

📲250.826.7626

📩konstantins@dominionlending.ca

GETTING APPROVED FOR YOUT FIRST HOME WITH A MORTGAGE BROKER

General Konstantin Seroshtan 21 Sep

A home is one of the most valuable assets you can own financially and on a sentimental level. However, the process of buying a house can be long and tedious, and that’s why many first time home buyers make mistakes. Call me today to get the process started.

One of the main hassles of this process is getting a suitable mortgage lender. Fortunately, these days home buyers can use the services of a mortgage broker to ease the process. Mortgage brokers are professionals that assist clients with origination, negotiation, and processing of mortgage loans.

Here are some ways that I as a mortgage broker can assist you in securing your first time home buyer mortgage.

1. Help Determine a Suitable Mortgage for You and your Home

There are a lot of things that come into play when mortgage applications are being processed. Some of the things lenders consider are:

  • Downpayment
  • Income (before tax)
  • Credit score
  • Monthly debt obligations
  • Monthly mortgage payments

After all these factors have been analyzed, a mortgage broker will be able to determine whether you can qualify for a first time home buyer mortgage, how much of a loan you can afford, and which interest rate you will qualify for. It’s not uncommon for home buyers to find a house only to find out later that they do not qualify for such a mortgage amount.

2. Access to Multiple Loan Products

Mortgage brokers have working relationships with many banks and lenders. Therefore, you will have access to different mortgage products from a variety of lenders.

This not only makes comparing mortgage products easy but also saves you the time and leg work involved with assessing lenders one by one.

3. Explain the Fine Print

Not all first time home buyer mortgages are created equal. Though interest rate is important, it is prudent that you understand all terms of the mortgage. For example:

  • Pre-payment privileges
  • Pre-payment penalties
  • Portability
  • General flexibility

With access to multiple lenders comes options for rates and terms! Your mortgage broker will walk you through your options to find you the most suitable mortgage for your needs.

4. Expertise

Dealing with mortgage lenders can be somewhat challenging as there are many processes and steps involved. However, the expertise a mortgage broker brings to the table will ease the process of your first time home buyer mortgage.

Unlike a bank employee, I am not obliged to promote a particular lender or loan product. Therefore, I will work with you to ensure you get a mortgage that suits your needs.

Contact me today!

250-826-7626

konstantins@dominionlending.ca

 

WHAT IS AN INTEREST RATE DIFFERENTIAL (IRD)? HOW DO YOU CALCULATE IT?

General Konstantin Seroshtan 16 Sep

A mortgage in its simplest form is a contract. It has terms, conditions, rights and obligations for you and the lender. When you sign on the dotted line, you are agreeing to those terms for the length of time laid out in the contract. However, sometimes life throws us an unexpected event that brings around the need to make key decisions and changes. One of these changes, for whichever reason, might be needing/wanting to break your mortgage contract before the end of the term. Can you do that? What are the penalties? Let’s take a look!

To answer the initial question of can it be done, the answer is yes. Most mortgage lenders will allow this provided they receive compensation. Compensation is known as an Interest Rate Differential or IRD. When you started your fixed rate mortgage you had a rate of xx.x%, but the best they can lend to someone else right now is 1% less, so they want the difference. Seems fair, right? However, like most contracts, the fine print tells the true tale. The method in which the IRD is calculated is what borrowers should be aware of.

Let’s examine a few different calculations that can be used for IRD.

Method “A” -Posted Rate Method – Generally used by major banks and some credit unions

This method uses the Bank Of Canada 5 year posted rate to arrive at the formula to calculate the penalty. It also considers any discounts you received. These are the ones you will commonly see on their websites or when you first walk into the Bank or Credit Union. Now, rarely does anyone settle on that rate-there is a discount normally that is given. This gives you the actual lending or contract rate. When this method is used, you will be required to pay the greater of 3 months interest or the IRD. What that looks like is:

Bank of Canada Posted Rate for a five-year term: 4.89%
You were given a discount of: 2%
Giving you a rate of 2.89% on a five-year fixed term mortgage.

Now you want to exit your contract at the 2-year point, leaving 3 years left. The posted rate for a 3-year term sits at 3.44%. The bank will subtract your discount from the posted 3-year term rate, giving you 1.45%. From there your IRD is calculated like so:

2.89%-1.45% =1.44% IRD difference x3 years=4.32% of your mortgage balance.

On a mortgage of $300,000 that gives you a penalty of $12,960.

For most, that is a significant amount that you will be paying! It can equate to thousands and thousands of dollars, depending on the mortgage balance remaining. So what other methods are used? Let’s take a look at the second one.

Method “B”-Published Rate Method – Generally used by monoline (broker) lenders and most credit unions

This method is more favourable as it uses the lender published rates. Generally, these rates are much more in tune with what you will see on lender websites and appear to be much more reasonable. Again, let’s look at an example.

Your rate: 2.90%
Published rate: 2.60%

Time left on contract: 3 years

Equation for this: 2.90%-2.60%=0.30% x3 years=0.90% of your mortgage balance. A much more favourable outcome. On a $300,000 mortgage that would equate to only $2,700.

The above two scenarios operate under the idea that the borrower has good credit, documented income, and a normal residential type property. It is also a fixed rate mortgage, not a variable one. For variable rates, if the contract needs to be broken, generally the penalty will be a charge of 3 months interest, no IRD applies.

So, if you do find yourself in a position where you need to end your contract early get in touch with me to review your options. To avoid any surprises all together though, it is advised to consult with a mortgage professional right from the start. We are committed to ensuring that you make an educated decision when selecting a lender. Yes, we want to get you the best rate, but we also want to make sure you are taken care of.

HOW CAN I IMPROVE MY CREDIT SCORE?

General Konstantin Seroshtan 15 Sep

Sorry, life hackers: There’s no one trick that will magically raise your credit score. Luckily, it’s fairly easy to start moving in the right direction. Here are a few good habits to adopt that will improve (and maintain) your credit score.


Pay your bills on time

Sounds straightforward, right? This is the single easiest way to maintain good credit. It isn’t the act of paying your bills on time that boosts your credit score, but the absence of negative items, such as late payments. For example, utility bill payments aren’t included in your credit report. But if you fall significantly behind on your bills, your account will go to a collection agency, which may report your delinquency to one or both of the credit bureaus (Equifax of TransUnion). Your bank will also report any bounced cheques. Get into the habit of paying your bills right away, in full. If you’re not able to do this, make sure to pay the required minimum amount shown on your monthly statement.


Stay below your credit limit

Ideally, your balance should be under 30% of your available credit limit at any given time. This is a guideline, not an absolute threshold, but is a useful watermark to maintain good credit because it shows you’re in control of your spending and responsible with payments. The higher your balance, the more it negatively affects your credit score. If your debt levels are above 50% of your available limit, create a payment plan to whittle down your balances, especially if you have a major loan application on the horizon (mortgage, auto loan). If you have more than one credit card, spread out your spending to keep your utilization levels low. For example, it’s better to have two credit cards each at 50% capacity than one maxed-out card.


Keep credit applications to a minimum

Basically, don’t be a credit hoarder. Only apply for new credit you genuinely need it. Every time you apply for a credit card or loan, the lender pulls a hard inquiry in order to decide whether or not to approve you. Each hard inquiry dings your credit score, so if it isn’t great to begin with, these points can really add up. If you apply for a lot of credit cards within a short period of time, credit bureaus may assume you desperately need cash. If you already find yourself with too many cards, you can help your score bounce back by keeping your balances low and holding off on applying for more credit for at least a year.


Consider keeping old accounts

Remember, how long you’ve been borrowing counts for about 10% of your credit score. Even if you don’t use it that often, it can be better to keep an old credit card if it has no negative items on it because you benefit from that positive history. If you have a card with cash back, miles or rewards points, ask yourself if you actually take advantage of the benefits and get back what you pay annually to use it. It can be beneficial to your credit report to keep using it responsibly. But if the annual fee outweighs the benefits, consider cancelling it. Of course, cancelling an account with a negative history won’t make it disappear off your report. Depending on the item, it takes years.


Be vigilant about errors

Unfortunately, mistakes happen. Inaccuracies on your credit report can lower your score and lead to you being denied credit or prime interest rates. Order your credit file from each bureau at least once a year, and track your report for errors or signs of identity theft. If you find a mistake on your report, notify the credit bureau as soon as possible. The bureau will contact the lender in question to verify the information. If it’s incorrect or incomplete, the item will be removed from your file. Include any paperwork you may have to help your case.


If you have no credit history

If you don’t have a credit history or need to rebuild your credit, you can apply for a secured credit card. You pay a deposit to the credit card issuer, which acts as collateral. Your credit limit is usually a percentage of that deposit, and you can use it like a regular card. The issuer reports your payment habits to the credit bureaus, so you can build a solid credit history by making all of your payments on time.

It’s important to note that a secured card is not a prepaid card, which you load, spend, and reload with your own money (kind of like a gift card). Because of this, prepaid cards don’t allow you to build a credit history.

Contact me for more information and guidance on how to receive your FREE Credit report!

250-826-7626

konstantins@dominionlending.ca

10 things to avoid when applying for a mortgage.

General Konstantin Seroshtan 8 Sep

Have you been approved for a mortgage and waiting for the completion date to come? Well, it is not smooth sailing until AFTER the solicitor has registered the new mortgage. Be sure to avoid these 10 things below or your approval status can risk being reversed!

1. Don’t change employers or job positions.

Any career changes can affect qualifying for a mortgage. Banks like to see a long tenure with your employer as it shows stability. When applying for a mortgage, it is not the time to become self employed!

2. Don’t apply for any other loans.

This will drastically affect how much you qualify for and also jeopardize your credit rating. Save the new car shopping until after your mortgage funds.

3. Don’t decide to furnish your new home or renovations on credit before the completion date of your mortgage.

This, as well, will affect how much you qualify for. Even if you are already approved for a mortgage, a bank or mortgage insurance company can, and in many cases do, run a new credit report before completion to confirm your financial status and debts have not changed.

4. Do not go over limit or miss any re-payments on your credit cards or line of credits.

This will affect your credit score, and the bank will be concerned with the ability to be responsible with credit. Showing the ability to be responsible with credit and re-payment is critical for a mortgage approval

5. Don’t deposit “mattress” money into your bank account.

Banks require a three-month history of all down payment being used when purchasing a property. Any deposits outside of your employment or pension income, will need to be verified with a paper trail. If you sell a vehicle, keep a bill of sale, if you receive an income tax credit, you will be expected to provide the proof. Any unexplained deposits into your banking will be questioned.

6. Don’t co-sign for someone else’s loan.

Although you may want to do someone else a favour, this debt will be 100% your responsibility when you go to apply for a mortgage. Even as a co-signor you are just as a responsible for the loan, and since it shows up on your credit report, it is a liability on your application, and therefore lowering your qualifying amount.

7. Don’t try to beef up your application, tell it how it is!

Be honest on your mortgage application, your mortgage broker is trying to assist you so it is critical the information is accurate. Income details, properties owned, debts, assets and your financial past. IF you have been through a foreclosure, bankruptcy, consumer proposal, please disclose this info right away.

8. Don’t close out existing credit cards.

Although this sounds like something a bank would favour, an application with less debt available to use, however credit scores actually increase the longer a card is open and in good standing. If you lower the level of your available credit, your debt to credit ratio could increase and lowering the credit score. Having the unused available credit, and cards open for a long duration with good re-payment is GOOD!

9. Don’t fall behind on bills.

You don’t want to do anything that could potentially hurt your score, like missing bill payment deadlines. Many lenders use a scoring model, and paying just one bill after the due date can knock quite a few points off your credit score. If history shows that you can’t pay your bills on time, your lender will likely assume that you’ll make late mortgage payments too.

10. Don’t forget to get a pre-approval!

With all the changes in mortgage qualifying, assuming you would be approved is a HUGE mistake. There could also be unknown changes to your credit report, mortgage product or rate changes, all which influence how much you qualify for.

Let’s chat today:

250-826-7626 (call/text) or

konstantins@dominionlending.ca

Konstantin Seroshtan