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Buying a home in the GTA is a stressful process that can be rife with challenges and obstacles. From start to finish, the process can include saving for a down payment, reviewing lenders, filling out the extensive application, awaiting approval, dealing with insurance providers and then shopping for your dream house.

The Federal Government has added a stress test to the mix, complicating matters somewhat for already nervous borrowers.

Should the stress test be causing you stress? Or will it prove to be beneficial for borrowers, lenders and the GTA housing market?

The Stress Test

A stress test means that applicants now must prove they could withstand a substantially higher interest rate if this occurs. It’s a simple formula designed to protect borrowers and lenders form loan defaults and to stabilize the housing market.

Unfortunately, this has slowed or stopped the dream of homeownership for many Canadians. People must not only be pre-approved for a mortgage, their application must overcome an additional challenge in the form of a stress test.

The stress test isn’t all negative, though. There should be a lot of positive outcomes for homeowners.   

Benefit to Canadians

This regulation will help ensure that more Canadians are financially prepared for the responsibility of homeownership. The real benefit will come from a housing market with more pricing options and less bidding wars because the pool of buyers will be smaller and more qualified.

A healthier housing market with more entry points for Canadians will be invaluable to the economy and the financial wellbeing of homeowners. 

Protection for Borrowers and Lenders

The stress test should protect borrowers and lenders from defaults and situations that could financially harm either side. This was a necessary step to make sure that borrowers are vetted prior to approval and that lenders can provide a loan with some reassurance that market volatility will not be a hindrance.

Don’t let the stress test stress you out. Try viewing it through a positive lens as it can help all parties. Contact us to learn more or to start the mortgage pre-approval process.

Refinancing a mortgage is a big step with the vast majority of homeowners citing lower interest rates and monthly mortgage payments as their reason for doing so. But there is more to the mortgage refinancing equation than that. There are a number of costs associated with refinancing, including the payback period. As a homeowner, you need to determine the payback period before refinancing; failing to do so could result in paying for refinancing that either prevents you from achieving meaningful savings or ends up costing you more in the long run.

What Is the “Payback Period” with Mortgage Refinancing?

The goal of refinancing a mortgage in Ontario is to ease your monthly financial payments. To achieve this goal, it is critical that property owners evaluate whether or not refinancing will actually benefit you financially.

Refinancing a mortgage with lower interest rates can save you thousands of dollars. Having lower monthly mortgage payments can also free up much needed cash. But there are upfront tradeoffs when refinancing.

For example, when you refinance a mortgage, you need to close your previous mortgage. This will result in a prepayment penalty. The newly refinanced mortgage will also come with closing costs and other fees. All of this adds up.

To see if it makes sense to refinance, or rather, to determine who you should refinance with, calculate how long the payback period is. What is the length of time it will take to recoup the costs associated of refinancing the mortgage?

When determining the payback period, many people simply divide the overall closing costs by the monthly savings. But there is more to truly figuring out the payback period than taking the difference between your payments before refinancing and after refinancing.

In some instances, even after refinancing, you could end up with the same monthly payment (or even pay more) and still come out ahead. Your private mortgage professional can help explain the process to you.

One thing is certain though, if the payback period is longer than the amortization period of the mortgage or the time it takes to sell the house, refinancing probably doesn’t make financial sense.

When Should You Consider Refinancing a Mortgage?

Again, the most popular reason for refinancing a mortgage is lower interest rates. More money goes to the principle and less goes to interest payments, meaning the mortgage gets paid off more quickly.

There are also other reasons for refinancing. Many people refinance their mortgage because they want to switch from a variable mortgage to a fixed rate mortgage. Case in point: mortgage rates are low, but the Bank of Canada has been raising its key lending rate and has signaled it will continue to. This means it is becoming more expensive to borrow. As a result, it’s a good time to refinance your mortgage with a fixed rate.

You might also want to consider refinancing a mortgage to vary the payback period. If you want to payback your mortgage over a longer period of time or even pay it off more quickly, consider refinancing your mortgage with different terms.

Factors Affecting the Payback Period

Below are a number of factors that could affect the payback period.

Your Financial Situation

Just because you have a mortgage and have never missed a payment does not mean you will qualify elsewhere for refinancing. Nor does it mean refinancing a mortgage will save you money. That’s because your current financial situation may have changed since you qualified for your initial mortgage. And it will all affect the payback period.

That’s why it’s important to reconsider factors like your credit history and debt load. If your credit history has taken a hit, if you’ve taken on additional debt, or if you’re job situation has changed for the worse, Canada’s big banks will not give you their best rates.

If the equity you’ve built up in the property when you decide to refinance is low, Canada’s big banks will hit you with higher interest rates. Chances are, this will negate any potential savings.

Refinancing a Mortgage Often

Refinancing a mortgage often is not a good idea and will actually erase any potential cost benefits. When you refinance a mortgage once, you are hit with fees on both ends: from the original lender and new lender.

When you refinance a mortgage more than once, your switching costs begin to accumulate, and chances are quite good you will end up spending more than you wanted to save.

Refinancing a mortgage numerous times will also negatively affect your credit score.

Canadalend.com, Helping You Secure a Second Mortgage

If you are thinking of refinancing a mortgage and want to know if it is a good time to do so and if it will benefit you financially, contact the licensed mortgage professionals at Canadalend.com. The experienced mortgagee consultants at Canadalend.com will weigh your options and determine what the payback period is and whether or not it fits your financial and lifestyle needs.

Why choose Canadalend.com over the big banks or other private lenders? The licensed mortgage professionals at Canadalend.com are independent. Traditional lenders will only try and sell you their own products, even if it’s not what you’re looking for.
Because the licensed mortgage professionals at Canadalend.com are independent, they are looking out for your best interest. They also have access to hundreds of different lenders. Many specialize in helping homeowners with bad or no credit or unreliable income refinance their mortgage.

To find out what your best equity option for retirement is, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.

A loan application is thorough and requires a lot of supporting documentation. It can be something of financial audit meaning applicants need to have their numbers in order if they want to get approved.

The information that will be required depends on the type of loan, and in some cases varies based on the applicant’s situation. For instance, a self-employed applicant requires more proof of employment and a first-time homebuyer could be asked to submit additional information.

Let’s review what information is generally required for a loan application.

Personal Information

Lenders need to know who they are considering so applicants need to provide a lot of personal information. This can include but is not limited to:

• Legal name(s)
• Date of birth
• Contact information
• Current address
• Current and past employers
• SIN

If you require a co-signer, then the borrower will need the same information for them as part of your application.

Credit History

You will need to a provide credit history to lenders, including a credit score. This will also help determine your interest rate and amortization options. This history provides insight into how you repay loans and your monthly debt load, both key factors to a lender.

It doesn’t matter if you’re applying for a mortgage, second mortgage, home equity line of credit, a car loan or a small business loan, you must submit your credit history to be scrutinized.

Appraisal or Inspection

For a loan to buy a property, you must pay for an appraisal or inspection. Once completed, the lender will ask you to submit the findings. The lender wants to make sure that you are paying for value and not overpaying for a declining or flawed asset. A lender is the one forking the bill for your property so they want to make sure its major systems are running and that it is a worthy investment.

Contact us today to learn more about the loan application process. We can walk you through everything you need to do and help you understand what your loan could look like with respect to interest rate and repayment.

Is Using Home Equity for Retirement a Good Idea?

Most Canadians are looking forward to the day they retire and no longer have to go to work. If you have a good pension, substantial savings, strong investments, and a mortgage-free home, retirement and your golden years will be relaxing.

Most Canadians can’t check off all those options. In fact, a whopping 32% of Canadians between 45 and 64 years of age have nothing saved for retirement.1 Of those that are saving, 53% don’t know if they’re saving enough.

There is no cookie cutter approach to figuring out how much you’ll need for retirement, but thanks to rising home prices, if your mortgage is paid off or almost paid off, there are some options to help make your golden years comfortable.

Keep in mind, tapping into home equity to help support your retirement is easier said than done. That’s because you still need to live somewhere when you’re retired. You can’t cash out of your property and tap all the home equity.

Below you can read about how a second mortgage, reverse mortgage, and home equity line of credit (HELOC) can help you lead a more comfortable retirement.

Second Mortgage

One way to tap into the equity you’ve built up in your home in Toronto is with a second mortgage. With a second mortgage, you take out an additional loan on your property. Just like the first mortgage, a second mortgage is secured against the property.

How much your second mortgage will be depends on how much equity you’ve built up in the property. And who you get the second mortgage from. Canada’s big banks want to see you’ve built up at least 25% equity in your home. A trust company will want to see equity of between 10% and 15%.

A private lender though has a lot more flexibility—you can have less than 10% equity built up in your home.

After being approved, you receive a one-time, lump sum payment that you make monthly payments on until it is repaid.

Advantages

There are a lot of advantages to using a second mortgage to help fund your retirement.

• You can tap up to 80% of your appraised home value, minus the balance on the first mortgage.
• You don’t have to cancel your first mortgage and pay penalties and fees.
• Many second mortgages are interest-only payments and one-year terms
• Any homeowner with a primary mortgage can apply for a second mortgage

Disadvantages

The downside to a second mortgage is that you will pay higher interest rates than on the first mortgage. That’s because there is more risk associated with a second mortgage. If the homeowner defaults on their payment, the lender of the first mortgage is paid out first. There is a chance the lender of the second mortgage might not get paid out in full.
The other downside is that you have to make a monthly payment. That’s not something someone in retirement may want to worry about.

Reverse Mortgage

If you are a Canadian homeowner above 55 years of age and are concerned about monthly payments, a reverse mortgage is an effective home equity option. Like a second mortgage, a loan is secured against the equity built up in the home.

Advantages

• No monthly payments until the homeowner moves or sells
• Receive up to 55% of the home’s value
• Interest accumulates monthly but the total amount you owe is capped at the home’s value

Disadvantages

• Reverse mortgages can be expensive: application fees, home appraisal fees, lawyer fees, which is deducted from the amount you receive from the reverse mortgage
• Higher interest rates
• Maximum you can receive is 55%; the actual amount depends on a number of factors
• Can make repayments but may be hit with large penalties if you do
• You’re still responsible for property taxes, homeowner’s insurance, and upkeep of your home.

Home Equity Line of Credit

Rising home prices have made a HELOC in Toronto a very popular option for those nearing or in retirement. A HELOC, like a second mortgage and reverse mortgage, is secured against the equity you’ve built up in your property. But unlike the other two options, a HELOC operates like a credit card or revolving line of credit.

Through a HELCO you can borrow up to 65% of the purchase price or value of the home. Money is deposited into an account and you can use as little or as much as you like. You only need to pay the interest on what you use.

Advantages

• Access to money when you need it
• Pay interest only on money that’s withdrawn
• Lower interest rates because home is used as collateral
• Lower minimum payments provide access to more cash flow
• Depending on how the money is used, it may be tax-deductible

Disadvantages

• Have to make monthly payments
• Interest rates can increase (or decrease), which impacts your ability to pay down debt

Canadalend.com, Helping You Secure a Second Mortgage

Study after study confirms that the majority of Canadians are not financially prepared for retirement. If you own a home or have enough equity built up in your property, a HELOC, reverse mortgage, and second mortgage can help boost your retirement income.

To fully understand the differences and discover which one is best suited to your retirement needs, contact the home mortgage professionals at Canadalend.com.
How can Canadalend.com give you better options than traditional lenders and other private lenders? The licensed home mortgage lenders at Canadalend.com are independent. Where the big banks only push their own products and services, even if they’re not what you’re looking for, Canadalend.com has access to hundreds of different private lenders. Many specialize in helping homeowners nearing retirement tap the equity in their home, even if they have bad or no credit, are self-employed, or have unreliable income.

To find out what your best equity option for retirement is, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.

Sources:

1. “32% of Canadians are nearing retirement without any savings: Poll,” Bloomberg, February 8, 2018; https://www.bnnbloomberg.ca/32-of-canadians-are-nearing-retirement-without-any-savings-poll-1.991680.