Higher Down Payments for Home Buyers Tomorrow!

Abbotsford, Chilliwack and Mission: A stolen gift from the Federal Grinch or a measured stance against an over heated real estate market?

According to Richard Madan from CTV news, Abbotsford, Chilliwack and Mission mortgages will see the Federal Government change their minimum down payment in 2016.

Tomorrow on Friday December 11th 2015  they are announcing that minimum down payments are being increased depending on the house purchase price. This will ultimately require buyers to save up more money to buy a home.

The new regulation will be require buyers to put 10% down payment on any amount of purchase price beyond $500,000.00. See the comparison chart below.

The regulation are expected to take effect in 2016.

Buyer shopping for homes below $500,000.00 will not be affected.

Our finance minister Bill Morneau will announce tomorrow morning. These measures are taken to cool the heated Real Estate market locally and in Ontario.

Purchase Price Current Down Payment Addition Down Payment New Down Payment
$400,000.00 $20,000.00 $0.00 $20,000.00
$500,000.00 $25,000.00 $0.00 $25,000.00
$600,000.00 $30,000.00 $5,000.00 $35,000.00
$700,000.00 $35,000.00 $10,000.00 $45,000.00
$800,000.00 $40,000.00 $15,000.00 $55,000.00
$900,000.00 $45,000.00 $20,000.00 $65,000.00

SOURCE:http://www.ctvnews.ca/mobile/business/feds-to-tighten-mortgage-rules-for-homes-over-500k-1.2695989

Abbotsford, Chilliwack, Mission New Down Payment Rules

By Referral Mortgage Consultants*

“Click, Call, Chat – Award Winning Brokers”
 1 – 32540 Logan Ave
Mission BCV2V 6G3

&

360-3033 Immel St

AbbotsfordBCV2S 6S2

&

8387 Young Rd

ChilliwackBCV2P 4N8

Dave  604 897 2741 Jordi 604 615 1312
www.AbbotsfordsMortgageBroker.com

 

www.BRMC.ca

 

www.PeaceOfficeMortgageBroker.com

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Discounted rates are resulting in Huge Marked-Up penalties and how to avoid them.

I want to be clear on this…..marked-up penalty calculation are not done by all the lenders….but unfortunately the big 5 banks in Canada are applying this calculations to their mortgages. Mortgages are no longer just about the lowest rate, rather ensuring the product you take will not hurt you in the long run. As a professional mortgage broker serving Abbotsford, Chilliwack and Mission BC, we help you understand these little differences from lender to lender.

When I started in this industry 15+ years ago mortgage penalties for breaking the term of a mortgage consisted of 3 months interest. Then interest rates started to drop and the Standard IRD Penalty Calculation started creeping into the world of mortgages.

What is interest rate differential (IRD)? Here is how one lender puts it.

“Interest Rate Differential (IRD) is calculated by applying the difference between the interest you are being charged on your mortgage and the current discounted rate at the time of payout that is closest to the remaining term on your mortgage.

This rate difference between the two amounts is then applied to the outstanding principal balance of you Mortgage for the remaining term of the mortgage.”

To put this in simpler terms.

If you have 3 years left on your 5 year term the bank will charge you the difference between the rate you have on your mortgage and the going rate for the 3 year term.  They will take that difference and apply it in form of “loss of interest earned” by the bank to the remaining 3 years and come up with the penalty amount.

THAT IS NOT EVEN THE SNEAKY SCAM YOU SHOULD AVOID.

When this started happening penalties were higher but not as high as they are now. The reason is the banks had not yet figured out how to take discounting and use it to their advantage. Well next came Discounted Rate IRD Penalty Calculation.

Discounting is a maneuver now done by banks to give the appearance that they are offering you a deal off their “posted rates”. It makes you feel like you negotiated a rate lower than the advertised rate they introduced up front. On the surface all is good. Nobody pays sticker price at a car dealerships and clients loved negotiating deeper discounts on their mortgages too. Keep in mind this is now to the delight of the Big Banks armed with their new Discounted Rate IRD Penalty Calculations.

In the past, before Discounted Rate IRD Penalty Calculation, it looked like this. The banks gave a similar discount off all of their posted rates across the board.

Term Posted Rate Discount Discounted Rate
3 years 4.69% 1.90% 2.79%
4 years 4.89% 1.90% 2.99%
5 years 4.99% 1.90% 3.09%

Here is an example of what penalties used to look like on these old discounted mortgages. In this case I am going to use an example of a mortgage balance of $300,000, and 3 years remaining on your term with the assumption rates did not change over the previous 2 years.

Calculation for IRD would look as follows.

3.09% – Rate on your mortgage

– 2.79% – 3 year posted rate less discount given on 5 year term (4.69% – 1.90% = 2.79%)

Standard IRD Penalty Difference = 0.30%

You would be charged the 0.30% for the remaining 3 years left on the mortgage which comes to $2600.

What the Banks did next was so simple yet increased their bottom line by enormous amounts.  All they did was change the discounts on the terms less then 5 years.

This is a rate sheet I pulled from one of the big 5 banks today.  I have highlighted the differences and how much extra penalty they will charge from the exact same mortgage about

Term Posted Rate Discount Discounted Rate
3 years 3.39% 1.00% 2.39%
4 years 3.89% 1.40% 2.49%
5 years 4.49% 1.80% 2.64%

You will see the discounted rate is very similar but the posted rates and discounts have changed.

The same penalty on the same $300,000 mortgage now looks like this.

2.64% – Rate on your mortgage

-1.59% – 3 year posted rate less discount given on 5 year term (3.39% – 1.80% = 1.59%)

Discounted Rate IRD Penalty Difference = 1.04%!

Now instead of being charged a penalty of $2,600 you would be charged $9,055 all because the bank changed the posted rates and discounts they give you. A vast majority of clients are given the discounted rates so why do we even have posted rates?

This example above is not even that bad as I have seen penalties in the $30,000 + range.

These are the details you will never get unless you go through a mortgage expert. Shop your mortgage, don’t just shop your rate!

Jordi Browne Mortgage & Insurance Team

8387 Young Rd
Chilliwack, BC V2P4N8

604 615 1312
604 795 2933
604 795 2770

www.AbbotsfordsMortgageBroker.com 

By Referral Mortgage Consultants*

“Click, Call, Chat – Award Winning Brokers”
1 – 32540 Logan Ave
Mission BCV2V 6G3

&

360-3033 Immel St

AbbotsfordBCV2S 6S2

&

8387 Young Rd

ChilliwackBCV2P 4N8

Dave  604 897 2741 Jordi 604 615 1312
www.AbbotsfordsMortgageBroker.com

 

www.BRMC.ca

 

www.PeaceOfficeMortgageBroker.com

Connect with us on!
BRMC Facebook

 

BRMC Google review Chilliwack Office

BRMC Google review Abbotsford Office

BRMC Google review Mission Office

http://www.linkedin.com/company/2410358

https://twitter.com/brmcmortgages

http://www.youtube.com/user/BRMCmortgages

We’re active on Facebook, Twitter, LinkedIn & YouTube. We really appreciate reviews! Good or Bad please let the world hear your voice! Connect with us for ongoing industry news items, contests & prizes.

*By Referral Mortgage Consultants – doing business as BRMC is: Verico Preferred Financing Inc / Verico Canadian 1st Mortgage Corp which have a co-brokering agreement and there is a common Mortgage relationship and are licensed with the Verico Dreyer Group. Mortgage ownership, that employees of both Mortgage companies may review, advise and help process the Mortgage files. That Verico Preferred Financing Inc & Verico Canadian 1st Mortgage Corp share the some expense and income from mortgages. Kim Langille Featured on thess site is an unlicensed mortgage assistant only, not a Mortgage Consultant. Jordi Browne featured on this site is the Mortgage Broker of record. “The Broker” is Jordi Browne. Jordi Browne also holds a Life Insurance License and represents Verico Canadian 1st Mortgage Corp. Dave Browne featured on this site has a Life Insurance License too but is an independent agent– Jordi and Dave Browne co-broker life insurance files and share expenses, all income retained by Verico Canadian 1st Mortgage Corp.

 

Fixed or Variable mortgage for Abbotsford, Chilliwack & Mission?

The BoC (Bank of Canada) reduced its over night interest rate from 0.75% to 0.5% on July 15 back in the middle of our great summer weather run. In turn these cuts made for even more attractive mortgage rates. These cuts were not designed to help mortgage borrowers but ultimately what helps the economy, in this case, helps mortgage holders.

Experts are predicting that this may further stimulate the real estate market, which we have seen already locally, with more buyers being able to qualify for a mortgage.

If you are thinking about buying a home or are close to needing to renewing your mortgage – here is what you need to know about choosing between a Fixed vs Variable Mortgage. (As per our Verico Monthly Newsletter)

This latest rate cut will peak the interest for a variable rate mortgage because of the immediate benefits consumers will see in their mortgage payments.  Markets are also predicting another rate cut in September if the economy remains stagnant, meaning variable rates could be lowered even further.

If you are considering this type of mortgage, I highly recommend that you review your financial situation.  If you are comfortable with a 2% rise in interest rates, then a Variable Rate Mortgage could be a good choice for you.”

To offset some of the risk of increase in mortgage rates for Variable Rate Mortgages we also recommend setting your payment at a higher level equivalent to what you would pay as a Fixed Mortgage. This enables you to payoff significantly more of your mortgage balance when rates are low and gives you a buffer against change.

We feel one of the risks to having a variable rate mortgage is the ability you have to making higher payments when a rate hike occurs. The strategy above helps protect you from this in many ways.

If you or a family member is thinking about getting a mortgage, expecially a variable rate mortgage, contact me so I can help you review your financial situation.

 

By Referral Mortgage Consultants*
“Click, Call, Chat – Award Winning Brokers”
 1 – 32540 Logan Ave
Mission BCV2V 6G3
&
360-3033 Immel St
AbbotsfordBCV2S 6S2
&
8387 Young Rd
ChilliwackBCV2P 4N8
Dave  604 897 2741 Jordi 604 615 1312
www.AbbotsfordsMortgageBroker.com
 
www.BRMC.ca
 
www.PeaceOfficeMortgageBroker.com
Connect with us on!
 BRMC Facebook
 
BRMC Google review Chilliwack Office
BRMC Google review Abbotsford Office
BRMC Google review Mission Office 
http://www.linkedin.com/company/2410358
https://twitter.com/brmcmortgages
http://www.youtube.com/user/BRMCmortgages
We’re active on Facebook, Twitter, LinkedIn & YouTube. We really appreciate reviews! Good or Bad please let the world hear your voice! Connect with us for ongoing industry news items, contests & prizes.
*By Referral Mortgage Consultants – doing business as BRMC is: Verico Preferred Financing Inc / Verico Canadian 1st Mortgage Corp which have a co-brokering agreement and there is a common Mortgage relationship and are licensed with the Verico Dreyer Group. Mortgage ownership, that employees of both Mortgage companies may review, advise and help process the Mortgage files. That Verico Preferred Financing Inc & Verico Canadian 1st Mortgage Corp share the some expense and income from mortgages. Kim Langille Featured on thess site is an unlicensed mortgage assistant only, not a Mortgage Consultant. Jordi Browne featured on this site is the Mortgage Broker of record. “The Broker” is Jordi Browne. Jordi Browne also holds a Life Insurance License and represents Verico Canadian 1st Mortgage Corp. Dave Browne featured on this site has a Life Insurance License too but is an independent agent– Jordi and Dave Browne co-broker life insurance files and share expenses, all income retained by Verico Canadian 1st Mortgage Corp. 
 

Mortgages not easy, but not impossible.

Today was our BRMC mortgage team weekly lunch. Galaxy Pho in Chilliwack was our destination today – Sooooo Gooood!

As we enjoyed our soups we discussed the challenges each of us are facing. We are seeing challenges on all different types of mortgage products and mortgage clients. The more we compared, the more we realized the Mortgage Market in Abbotsford, Chilliwack and Mission have changed over the last few months.

Technically the changes started 6 years ago when the mortgage insurance companies like CMHC began their slow and steady “de-risking” policy by amending their lending policies. In doing this they have hoped to create a more stable housing market in this low interest rate era. That being said, they have effectively left consumers with less choices and higher funding costs for lenders and borrowers. This article somewhat summarizes these insurance companies bottom line and why they made these changes, though it seems they are being ultra conservative based on their reserves according to this article..

Changes over last 6 years have included:

  • cutting back amortization maximums
  • reducing maximum LTVs (Loan To Value of the house)
  • Eliminated products
  • Applying conservative approach to Low Down Payment purchasers
  • Increased documentation for Self Employed mortgages
  • Fees for insurance increased

We as a group have seen a significant up-tick in turn downs for mortgages from the insurers in Canada. It is our belief that recent reports regarding the inability of low down payment purchasers to save money after receiving their mortgages have led the insurers to make tougher lending guidelines specifically aimed at them.

Business For Self clients are also receiving the same treatment regardless of down payment size. At one time borrowers such as these BFS clients could put 35% down payment and demonstrate an ability to save money to offset any concerns from the lenders & insurers but that is not the case anymore.

We were recently advised by an underwriter from a major lender that self employed “stated-income mortgages” will be a thing of the past and all clients will be expected to report higher incomes on their tax returns to qualify for mortgages. Demonstrating a strong cash position will simply not be enough.

In conclusion we can still lend you money, but be prepared for the lender to ask for a lot of documentation no matter who you are, strong credit, weak credit or indifferent.

By Referral Mortgage Consultants*

“Click, Call, Chat – Award Winning Brokers”
 1 – 32540 Logan Ave
Mission BCV2V 6G3

&

360-3033 Immel St

AbbotsfordBCV2S 6S2

&

8387 Young Rd

ChilliwackBCV2P 4N8

Dave  604 897 2741 Jordi 604 615 1312
www.AbbotsfordsMortgageBroker.com

 

www.BRMC.ca

 

www.PeaceOfficeMortgageBroker.com

Connect with us on!
 BRMC Facebook

 

BRMC Google review Chilliwack Office

BRMC Google review Abbotsford Office

BRMC Google review Mission Office 

http://www.linkedin.com/company/2410358

https://twitter.com/brmcmortgages

http://www.youtube.com/user/BRMCmortgages

We’re active on Facebook, Twitter, LinkedIn & YouTube. We really appreciate reviews! Good or Bad please let the world hear your voice! Connect with us for ongoing industry news items, contests & prizes.

*By Referral Mortgage Consultants – doing business as BRMC is: Verico Preferred Financing Inc / Verico Canadian 1st Mortgage Corp which have a co-brokering agreement and there is a common Mortgage relationship and are licensed with the Verico Dreyer Group. Mortgage ownership, that employees of both Mortgage companies may review, advise and help process the Mortgage files. That Verico Preferred Financing Inc & Verico Canadian 1st Mortgage Corp share the some expense and income from mortgages. Kim Langille Featured on thess site is an unlicensed mortgage assistant only, not a Mortgage Consultant. Jordi Browne featured on this site is the Mortgage Broker of record. “The Broker” is Jordi Browne. Jordi Browne also holds a Life Insurance License and represents Verico Canadian 1st Mortgage Corp. Dave Browne featured on this site has a Life Insurance License too but is an independent agent– Jordi and Dave Browne co-broker life insurance files and share expenses, all income retained by Verico Canadian 1st Mortgage Corp.