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In early December, the Federal Government announced that it was tightening the country’s lending rules and raising the minimum down payment from 5% to 10% for the portion of a home purchase above $500,000.1 The new down payment rule—which takes effect February 15, 2016—will have a big impact on some first-time home buyers across the country.

Minimum Down Payment Raised to Cool Housing Market

The Canadian mortgage rule landscape has changed significantly over the last 10 years. It wasn’t that long ago that you could purchase a home with zero down and a mortgage with a 35-year amortization period.

All that changed when the Federal Government stepped in to tighten mortgage lending rules in an effort to avoid a housing crisis like the one that gutted the U.S. market. In 2008, the amortization period was reduced to 35 years from 40 years and the minimum down payment for new government-backed mortgages was raised to 5%.2

Despite these (and other) efforts, record-low interest rates and strong demand from buyers have helped the Canadian housing market stay red hot, especially in Ontario and British Columbia. The average sale price for a home across the country is expected to increase by 8.4% year over year to $442,600. In 2016, the average Canadian sale price is projected to increase by a more manageable 1.4% to $448,700.

To help get a handle on the strong housing market, the Federal Government introduced a new mortgage rule —one that will make it a lot more difficult for first-time homebuyers to get onto the property ladder. On February 15, 2016, the minimum down payment to qualify for Canadian Mortgage and Housing Corporation (CMHC) insurance will rise from 5% to 10%.

Where first-time homebuyers currently need to just come up with a 5% down payment on a home, come February, they will need to put 5% down on the first $500,000 and 10% on the next $500,000.

For example, if you wanted to buy a home right now that was valued at $750,000, your down payment would be $37,500. Under the new rules, a homeowner will need to come up with $50,000: 5% of $500,000 and 10% of the remaining $250,000.

The new down payment rule does not apply to homes over $1.0 million because they do not qualify for mortgage insurance. The new down payment rule also does not affect those looking to buy a home listed under $500,000. For those property buyers, the 5% down payment rule is still in place.

What the New Down Payment Rule Means for First-Time Homebuyers

Doubling the down payment on a home from 5% to 10% means it will be a little more difficult to come up with the extra money needed to buy a home. Others may have to save up for a while longer.

Keep in mind that the national average price for a home sold at the end of 2015 is expected to be around $442,600 and $448,700 in 2016,3 which is still well under the $500,000 threshold for the new 10% down payment rule. This is great news for first-time homebuyers.

Those national averages include upward sales activity in Toronto and Vancouver. If you take these two markets out of the equation, the national average is approximately $339,000.4

Case in point: the average price of a detached home in Toronto was $1.01 million in November. In Ottawa, just a few hours north east of Toronto, the average sale price of a residential-class property was $380,761. Most of the properties sold in the Ottawa area fall in the $300,000 to $400,000 price range, followed by the $200,000 to $300,000 range.5

What all of this means is that the new down payment rules will only affect a small portion of the market, namely first-time homebuyers in hot markets like Toronto, Vancouver, and Hamilton.

But in most cities across the country, the average home price is under $500,000. And for those first-time homebuyers, the minimum down payment is still just 55.

Canadalend.com—Getting Ottawa Homebuyers the Best Products and Rates

Whether you’re a first-time homebuyer looking to buy a home under or over $500,000, the licensed, independent agents at Canadalend.com will help you get a mortgage with the best rates and terms .

As the country’s leading private mortgage professionals , Canadalend.com has access to hundreds of mortgage lenders who specialize in both residential and commercial loans. We’ll help you find a lender who is best suited to meet both your financial and lifestyle needs.

To see what kind of mortgage loan you qualify for, contact Canadalend.com today . Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

“Bill Morneau tightens mortgage rules on homes over $500K,” cbc.ca, December 11, 2015; http://www.cbc.ca/news/politics/morneau-home-ownership-finance-1.3360610.
Freeman, S. “Mortgage rule changes more severe than industry wanted,” Investment Executive web site, January 17, 2011; http://www.investmentexecutive.com/-/news-56505.
“CREA Updates Resale Housing Forecast,” The Canadian Real Estate Association, December 15, 2015; http://www.crea.ca/stats/quarterly-forecasts.
Brooks, S., “Ottawa’s New Down Payment Rules Aren’t Necessarily A Bad Thing,” Huffington Post Business, December 16, 2015; http://www.huffingtonpost.ca/samantha-brookes/down-payment-rules_b_8817960.html.
“Mild weather and post-election enthusiasm spurs on homebuyers,” Ottawa Real Estate Board, December 3, 2015; http://www1.ottawarealestate.org/home/NewsInformation/LatestNewsRelease.aspx.

A second mortgage is a popular way for homeowners to access the equity in their home in order to consolidate debt or pay for home renovations, amongst other things. With interest rates at near-record lows, it’s a great time to consider a second mortgage .

How Does a Second Mortgage Work?

A second mortgage is exactly what it sounds like—it’s an additional mortgage taken out against your home. A second mortgage doesn’t take the place of the first mortgage . In fact, you still make payments on your second mortgage while making payments on the original mortgage.Â

With a traditional second mortgage, you can borrow up to 85% of your property’s appraised value minus the amount you have left to pay on the first mortgage.1 That being said, a second mortgage differs from the first mortgage you took out on your home.

It’s called a second mortgage because it’s the second loan taken out against your home. If the loan goes into default, the original mortgage lender gets paid out before any additional money goes toward the second mortgage lender.

As a result, a second mortgage is seen as being riskier than a first mortgage. This is why the interest rate on a second mortgage is higher than the interest rate on the first mortgage.

But, with interest rates near record lows—and expected to stay low—and housing prices on the rise, it’s a great time to consider a second mortgage.

Why Get a 2nd Mortgage

A second mortgage can be a real financial lifesaver for those looking for additional funds. That’s because there are few restriction on how you can use the money you get from a second mortgage.

Some of the most popular reasons for taking out a second mortgage include:

• Refinancing to consolidate high-interest debts
• Paying for unexpected expenses
• Increasing the value of the home through renovations
• Investing in the stock market or mutual funds
• Helping with children’s tuition
• How You Can Get a Second Mortgage

If you’ve built up some equity in your home, a second mortgage is a fairly easy way to get money. For the most part, it’s also pretty easy to find a lender willing to give you a second mortgage.

For borrowers, the qualifications for getting a second mortgage are not as stringent as for a first mortgage. Because you already own a home, the qualifications are based more on home equity than credit scores and income.

However, the rates and conditions attached to that second mortgage will vary depending on the lender. For example, a credit score and income may not be as important when qualifying for a second mortgage, but a better credit score and income could mean lower interest rates.

That’s why it’s important to do a lot of research before deciding on what lender to use. Or better yet, let the independent, licensed agents at Canadalend.com do the leg work for you.

Canadalend.com Helping Torontonians Find the Best Second Mortgage

When it comes to finding the best second mortgage rates and terms in Ontario , more people turn to Canadalend.com. Because the licensed agents at Canadalend.com are independent, they work for you.

Canada’s big banks and lenders only promote their own financial products, regardless of whether they suit your needs. Canadalend.com has access to hundreds of lenders, plus the agents at Canadalend.com will go over all options to help you make the most informed decision possible.

If you’re a property owner in Ontario and are looking for a second mortgage, contact the second mortgage experts at Canadalend.com today. Or, you can apply online and one of our lending specialists will help you set up an appointment for a free, personal consultation at your earliest convenience.

Sources:

1. “Borrowing on home equity,” Government of Canada web site, last accessed January 29, 2016; http://www.fcac-acfc.gc.ca/eng/resources/publications/mortgages/Pages/Borrowin-Emprunte-1.aspx#Second.

A home equity line of credit (HELOC) or a home equity loan is a great way to borrow against the equity of your home. With housing prices at record levels in the Greater Toronto Area (GTA) and interest rates near record lows, it’s a perfect time for property owners to consider taking out a HELOC or home equity loan .

Is A Home Equity Line of Credit Right for Me?

If you own a home and have been paying down your mortgage, you’ve been building up equity in your property. Your home equity is the difference between the market value of your home and any debts—like the outstanding mortgage—registered against it.

If your home has increased in value, you could have a lot more equity than you expect. Many home owners tap the equity they’ve built up over the years to pay down debt, renovate, or invest in additional real estate.

Two of the most popular ways to access the equity built up in your property is through a HELOC or a home equity loan. While they sound similar—both use your current property as collateral—they operate quite differently.

A HELOC is a revolving account that lets you borrow against your home equity. Because it’s revolving, you can withdraw money as needed, and you only pay interest on the amount you borrow.

A home equity loan , on the other hand, operates like your primary mortgage. You receive a fixed amount of money—payable over a fixed period of time, typically—with a fixed interest rate. Once you receive the home equity loan, you start to pay interest on the entire amount. On top of that, you cannot get more from the loan.

Best of all, in many cases, with a home equity loan product, the interest rate is lower compared to other types of open loans. That’s because your home is used as collateral. The interest charged on home equity loans is calculated at a variable rate plus prime. Because the rate is variable it can vary drastically depending on which financial institution you use. That said, some lending institutions also offer a fixed-rate option.

How Much Home Equity Can I Borrow?

Depending on the market value of your home, the outstanding mortgage balance, and certain other factors (a steady income, good credit score, marketable property, etc.), you may qualify for a HELOC or home equity loan .

A HELOC allows you to access a maximum of 65% of the value of your home. At the same time, the HELOC and home balance cannot equal more than 80% of the home’s appraised value.

For example, you want a HELOC to purchase an additional property in Toronto—how much do you qualify for? First, take your home’s current value and multiply it by 80%. Then subtract the balance of your mortgage. That figure is how much you can access through a HELOC, as long as it is not worth more than 65% of your home’s value. To figure that out, simply divide the HELOC amount by your home’s appraised value.

If your home is currently appraised for $500,000 and you still have $100,000 left to pay off on your mortgage, your maximum loan-to-value ratio at 80% is $400,000. Subtract the $100,000 left on your mortgage and you can access $300,000 with a HELOC.

On the other hand, a home equity loan—often called a second mortgage—operates the same way as your primary mortgage. It’s used for a specific amount and is repaid with fixed monthly payments.
Canadalend.com—Toronto’s HELOC and Home Equity Loan Professionals

Because you’re using your property as collateral, it’s not too difficult to find a lender willing to give you a HELOC or home equity loan. But, the rates and conditions of the financial product may vary depending on the lender.

That’s why it’s important to talk to the licensed, independent agents at Canadalend.com first. Because we’re independent, we have access to hundreds of lenders. We’ll evaluate your financial situation, help you decide which kind of loan is best for your financial and lifestyle needs, and find you the right lender.

If you’re thinking of buying an investment property in the Toronto area and want to see how much equity you can access, contact us today. Or, you can apply o nline and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

With interest rates near record lows and the Canadian housing market strong it’s an excellent time to consider getting on the property ladder. But before you buy a home, you need to set a budget and figure out how much of a home you can afford.

Budgeting for your home is crucial because it’s important to set a home budget before looking at houses so you can determine what kind of house you can afford to live in. That’s because there is more to setting a home-buying budget than just the cost of the home.

Below are a number of upfront fees you need to consider when setting your home buying budget.

How Much Are Home Appraisal Fees?

It’s important to do a home appraisal before purchasing your home. In fact, many financial institutions insist you have one done. That’s because they want to verify the value of the home to ensure that you’re not over-paying and over-borrowing.

The cost for a home appraisal can vary depending on the size of the home, but a residential home appraisal typically runs from C$300 to C$500.

How Much Does a Land Survey Cost in Ontario?

Homebuyers often forget to include land survey costs when setting a budget for their homes. Land surveys help determine the size of the property, the location relative to roads and adjacent properties, and other geographic and physical features. In Ontario, only a licensed Ontario Land Surveyor can provide you with this kind of information.

Your mortgage lender might ask to see an up-to-date survey prior to finalizing the mortgage. They want to ensure that the listing for the property and the survey match. If the seller does not have one or does not agree to get one, you will need to pay for it.

The cost of a land survey varies depending on the type of survey and the size and complexity of the property (location, terrain, etc.). While an Ontario Land Surveyor is the only person who can provide you with the exact price, it can cost between C$600 and C$2,000 This may sound like large sums, but they’re not if you’re going to spend hundreds of thousands of dollars.
Ontario Land Transfer Taxes

When you buy a home, condominium, or land in Ontario, you need to pay a land transfer tax which is due when you close on the property. The Ontario Land Transfer tax is a marginal tax, so as a result, each portion of your home’s value is taxed at a different rate.

In Ontario, 0.5% is charged on the first C$55,000; 1.0% is charged on C$55,000 to C$250,000; 1.5% above C$250,000 to C$400,000; and 2.0% above C$400,000 where the property contains one or two single-family residences.3

If you live in Toronto, you also need to consider the Municipal Land Transfer Tax, which is in addition to the Province’s Land Transfer Tax. In Toronto, 0.5% is charged on the first C$55,000; 1.0% on C$55,000 to C$400,000; and 2.0% over C$400,000

To top it off, there is now an administration fee of C$75.

CMHC Mortgage Insurance Rates

The Canadian Mortgage and Housing Corporation (CMHC) provides mortgage loan insurance to financial lenders for homebuyers who have a down payment of less than 20% and minimum of 5.0%.

If you have a down payment of 20% it means you were able to save a sizable portion and a lender will feel confident that you won’t default on the mortgage. If you pay less than 20%, the lender may worry that you will not be able to repay your mortgage. As a result, you pay for mortgage insurance to protect the lender from any potential default on the loan.

The CMHC Mortgage Loan premium is calculated as a percentage based on the loan and the size of your down payment. The lower your down payment, the higher the percentage you will pay in insurance premiums. The premium is based on the size of the mortgage.5

A 15% to less than 20% down payment requires an insurance premium of 1.8%
A 10% to less than 15% down payment requires an insurance premium of 2.4%
A 5.0% to less than 10% down payment requires an insurance premium of 3.6%
Closing Costs and Legal Fees

When determining a home-buying budget, you need to consider closing costs and legal fees. Closing costs and legal fees are paid when you close the purchase of your home. Fees vary from lawyer to lawyer. In addition to covering your lawyer’s time, your bill will cover expenses used for title insurance, registering the deed and mortgage charge, performing a title search, and preparing the tax certificate.Â

Your real estate agent should be able to provide you with the name of a good lawyer.

Home Insurance

Your mortgage lender will insist that you have enough home insurance to cover the cost of the property since your home is the security for the loan. The price of your home insurance is based on the value of the home and how much it would cost to rebuild it.

Property Tax Adjustments

Nothing is free when you buy a home. You need to factor in reimbursements for pre-paid costs, such as property taxes, hydro and water, gas, and even filling the oil tank. With metered services (hydro, gas, water) the meters are read on the day you take possession. If your house is heated with oil, the seller will top up the tank and you, the buyer, will pay the buyer for one full tank.

Remember to factor in various adjustment costs when budgeting for your home.

Moving Costs

Don’t forget about factoring in moving costs when you’re setting a budget for buying a home, as well. Moving costs will depend on who you hire, how far you’re moving, and how much you’re moving (how many kilograms). Get at least three estimates.

If possible, move during off-peak periods. It will cost less if you move in the middle of the month since movers are not as busy. And you might get a better deal.

Maintenance

Another hidden cost when it comes to determining a housing budget is maintenance. When moving into your home, it’s a good idea to set aside C$2,000 in case something unexpected occurs, such as a leak or a break. Or maybe you want to build a fence or landscape.

Once you’ve moved in, be prepared to set aside between 3.0% and 5.0% of your home’s value annually. If your home is worth C$400,000, you should expect to spend C$12,000 a year on maintenance.

It may not happen every year, but eventually, you will need money to replace the furnace, re-shingle the roof, pave the driveway, add a new septic system, replace the appliances, update the bathroom or kitchen, paint the walls, or refinish the hardwood floors.

Canadalend.com Helping Ontarian’s Set a Home-Buying Budget

There’s more to saving for a home than just the mortgage. In addition to helping you find the best mortgage with the best rates, the licensed, independent agents at Canadalend.com will also help you determine a home-buying budget—one that includes all the hidden costs. That’s because, at Canadalend.com, we want to help you meet your financial and long-term lifestyle needs.

If you’re thinking of buying a home and want to find out what kind of mortgage you qualify for and how to set a budget for buying a home, contact Canadalend.com today. Or apply o nline and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

• King, R. “9 tips for high value home appraisals,” Money Sense, February 15, 2012; http://www.moneysense.ca/columns/9-tips-for-high-value-home-appraisals/.
• Vaz-Oxlade, G., “Hidden Costs When Buying a Home,” GailVazOxlade.com, last accessed March 10, 2016; http://www.gailvazoxlade.com/articles/home_sweet_home/hidden_costs_when_buying_home.html.
• “Land Transfer Tax,” Ontario Ministry of Finance web site, last accessed March 10, 2016; http://www.fin.gov.on.ca/en/tax/ltt/.
• “MLTT Rates and Calculation,” City of Toronto web site, last accessed March 10, 2016; http://www1.toronto.ca/wps/portal/contentonly?vgnextoid=a690a58e82cc1410VgnVCM10000071d60f89RCRD&vgnextchannel=4f90ff0e43db1410VgnVCM10000071d60f89RCRD.
• “How Much Does CMHC Mortgage Loan Insurance Cost?” Canadian Mortgage and Housing web site, last accessed March 10, 2016; http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm.