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If you’re considering going to school or need an influx of cash to pay for your child’s educational expenses, you’re probably already well-aware how much it costs to go to college or university.

In Canada, tuition for an undergraduate program for full-time students is, on average, $6,571. The average cost for a graduate program is $6,907. Toss in residence and food, etc., and a four year-university degree can cost as much as $60,000.1 For a child born today, it could cost as much as $140,000 to put them through college or university.2

It’s not just a post-secondary education that is costly. If you’re thinking of sending your kids to a private school, it can cost even more. A lot of private schools have tuition starting at under $4,000 per year for elementary years. Tuition for going to a private high school, generally range from $6,000 to $12,000 per year. If you want your kids to attend Ridley College or Upper Canada College, you’ll need to come up with around $35,000 a year.

Options for Financing an Education. Whether it's through a Registered Education Savings Plan (RESP) or a Tax-Free Savings Account (TFSA), some people find it easy to set aside that kind of money for a post-secondary education in Toronto.

But not everyone.

A study conducted by the Bank of Montreal found that 45% of parents with kids under the age of 18 expect to foot anywhere from 50% to 100% of their child’s post-secondary education. But not even that will cover all the expenses. To cross the finish line, student loans and scholarships will be needed to make up the difference.3

If you’re a homeowner, you have a secret weapon that can help pay for college tuition. It’s the equity in your home. Not only can a home equity loan give you the flexibility you need to help pay for a post-secondary education in Ontario, it also provides the peace of mind you need to focus on studying.

What Is Home Equity?

Every time you make a mortgage payment, or the value of your property increases, you build up equity in your home. The longer you own your home and pay your mortgage, the higher the equity in your home is.

For example, if you purchased a home for $400,000 and it has been appraised at $500,000 and you still owe $150,000 on the mortgage, you have built up $350,000 in home equity.

If you need to come up with money for tuition costs and you have built up more than 20% equity in your property, a home equity loan may be the best route to take. Not only is the Toronto housing market solid, interest rates remain low, and Ontario’s economy is strong.

Borrowing with a Home Equity Loan

Home equity loans are secured against your property. But banks will not let you borrow against all the equity you’ve built up. The maximum you can borrow with a home equity loan in Toronto is 80% of the appraised value (minus the unpaid balance of the existing mortgage).4

Once approved for a home equity loan, the lender will give you a one-time lump sum payment that gets paid off over a predetermined period, just like your mortgage does.

Just like your mortgage, you get charged on interest on the total amount of the home equity loan as soon as the lender gives it to you. And, just like your first mortgage, with a home equity loan, you are now responsible for two monthly mortgage payments.

Does Everyone with a Home Qualify for a Home Equity Loan?

No. Just because you have a home does not mean you automatically qualify for a home equity loan. Even if you’ve built up considerable equity in your property, Canada’s big banks might think there’s a good chance you’ll default on a home equity loan.

Why would big financial institutions do that? Maybe things have changed since you qualified for your first mortgage. If you’re now self-employed and cannot verify your income, it will be difficult to get a home equity loan.

If your credit has taken a hit or taken on too much additional debt, major lenders might turn down your request for a home equity loan. On top of that, Canada’s new stricter lending rules have made it much more difficult for the average home owner to secure a home equity loan.

If, for some reason, the value of your property has dropped, the equity you’ve built up in your home will have shrunk, further diminishing the chances of getting a home equity loan.

Canadalend.com, Helping Ontarians Access Their Home Equity

Unfortunately, the cost of living and unexpected expenses mean most Canadians have not saved up enough money to pay for a post-secondary education; whether it’s for their kids, grandkids, or themselves. If you’re a property owner, Canadalend.com can help you get a home equity loan with the best terms and conditions.

How can Canadalend.com provide better service and options that Canada’s big banks? Big banks will only try and get you to buy one of their financial products, whether it’s in your best interest or not.

Because the licensed mortgage professionals at Canadalend.com are independent, we have access to literally hundreds of different lenders. Many are non-traditional lenders that are not regulated by federal or provincial regulations.

If you’re a home owner and are looking to take out a home equity loan to help pay for tuition, or any other reason, contact Canadalend.com today. We’ll evaluate your current financial situation and help you find a lender that can provide you with a financial product that suits your needs. 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.

In October 2017, the Federal Government announced that a mortgage stress test would be applied to all mortgage applications in Canada. This news caused a firestorm of opinion and questions as many believed that it would block tens of thousands from homeownership.

What do current and future homebuyers need to know about the stress test, and what positives can be drawn from this Government intervention?

The Basics

Under this test, homebuyers must prove that they can afford a mortgage at either a five-year rate close to 5% or two percent higher than their current rate, depending on which is higher. The idea is to prove that a household will survive in the event of an interest rate hike.

The stress test is now embedded into the pre-approval process and is unavoidable for the most part. Homebuyers must evaluate their ability to pass the test or speak to a mortgage expert.

Insured and Uninsured First-time Homebuyers

An uninsured borrower is one who puts a minimum of 20% towards the purchase price as part of the sale. For borrowers who have a down payment below 20%, they must pay additionally for mortgage insurance.

Many uninsured borrowers assume that their down payment would exempt them from the stress test. Being able to pay a larger lump sum upfront doesn’t tell the lender that an applicant can carry the cost of a home monthly. Both insured and uninsured borrowers will be subjected to the stress test.

Mortgage Renewals

The stress test is not retroactive, meaning if your mortgage was approved prior to October 2017, then there will be no impact on your situation. In addition, if you renew with your existing lender, then you are exempt from the stress test. With respect to renewals, if you switch lenders then you will be subjected to the stress test during the process. Be sure to speak with your broker to confirm as this can vary from lender to lender.

The best advice is to not get too stressed about this situation. This new rule is designed to protect borrowers and lenders in the long-term against any market volatility.

There is a lot of information to sort through so speak with a mortgage specialist to review your situation and start the pre-approval process.

New Mortgage Rules

On January 1, 2018, Canada’s already strict mortgage lending rules got even tougher, making it more difficult for those looking to renew or refinance their mortgages. Unlike before, Canadians of every stripe now have to prove that they can handle an interest rate hike that is substantially higher than their current rate.

On top of that, new mortgage rules mean borrowers, even those with a down payment of 20% or more now need to pass a stress test. Before 2018, only those borrowers with a small down payment who needed mortgage insurance had to face a stress test.

This represents the seventh time that the federal government has tightened the country’s mortgage rules since July 2008, severely limiting the amount of debt that Canadians refinance, renew, and borrow.

The new lending rules implemented in 2018 though could have the biggest impact on Canadian homeowners looking to refinance or renew. There is one silver lining for those homeowners who are looking at renewing or refinancing their mortgages: The new, stricter lending rules only apply to federally regulated financial institutions—the rules do not apply to private lenders.

Image Source: iStock.com/tumsasedgars

How Will the New Rules Affect Mortgage Renewals?

Without question, the new mortgage rules will make it more difficult for homeowners to renew or refinance their mortgages.

• Stress Test

The new stress test ensures first time homebuyers can qualify for a mortgage at the Bank of Canada’s current five-year benchmark rate plus two percentage points.

But homeowners looking to renew already have a mortgage so why would the stress test matter? Unfortunately, your lender will still want to make sure you can pay your mortgage.

Just because you were approved for a mortgage in the beginning doesn’t mean your renewal will be approved. In fact, critics of the new mortgage rules say the stress test will hurt those looking to renew and refinance the hardest. Keep in mind, you need to qualify at the higher stress test rates—not your existing contractual mortgage rate.

• Loan-to-Value Ratio

The loan-to-value ratio (LTV) measures the value of a mortgage as a percentage of the total value of the property. For those thinking of refinancing, Canada’s big banks need to make sure the LTV ratio is adjusted to local market conditions. The higher the LTV ratio, the riskier the loan.

If you want to get a line of credit or home equity loan, the LTV ratio has to be lower than 80%. Or put another way, you can only refinance a mortgage if you’ve got 20% equity built up in the value of your property. If you haven’t built up enough equity in your home, you won’t be able to refinance until you do.

Even if you have built up enough equity, the new stricter lending rules will make it harder to qualify for a home equity loan or home equity line of credit. The banks will add two points to the current benchmark rate when you apply.

Can You Be Denied a Mortgage Renewal?

When your current mortgage term reaches its maturity date, you will need to renew the outstanding balance for another term. Before your term expires you’ll receive a renewal offer from your current lender. It will most likely include the new mortgage rate and length of the term. All you need to do is accept their terms and send it back. Except signing the renewal doesn’t mean you’ll get approved.

Even if you’ve made your mortgage payments on time, the lender will want to review your current financial situation, this includes your credit score. They want to see how much debt you’ve accumulated and to see if your employment situation has changed. If your current lender doesn’t like what it sees, it could choose not to renew your mortgage.
Remember, you have to qualify according to the higher stress-test rates—not your existing contractual mortgage rate.

If you fail the stress test, chances are you’ll be stuck renewing your mortgage with your current lender at less than desirable rates.

You can look around and try to find a better rate, but you may get denied by a new lender. That’s because you need to submit a new mortgage application with your renewal.

The new lender doesn’t know anything about your financial situation and will need to verify your income to make sure you meet their credit requirements before they will approve your application.

Tips for Better Mortgage Refinancing

• Homeowners thinking about refinancing are being hit on two different fronts: interest rates are rising, and lending terms are tougher. This means it’s more important now than ever to make sure you get the best terms and rates when it comes time to renew.
• If your mortgage is coming up for renewal, it’s a good idea to start shopping around now and negotiate with prospective lenders. But where can you turn if your financial situation has changed; if your debt level has increased significantly; if your credit score has fallen; or if you make less money?
• If any or all of these scenarios have happened to you, it won’t matter how much you shop around. Traditional lenders will see you as a risk.

Canadalend.com, Mortgage Renewal and Refinancing Experts

Thanks to stricter mortgage rules, it is now a lot more difficult for Canadian homeowners to renew or refinance their mortgages. But those rules only apply to federally-regulated financial institutions. Since Canadalend.com is independent, they can help you find a private lender to renew or refinance your mortgage with the best terms and rates.

Where the country’s big financial institutions have to legally follow the new Office of the Superintendent of Financial Institutions (OSFI)-mandated stress test for mortgage renewals and refinancing, private lenders don’t have to. And the mortgage renewal and refinancing professionals at Canadalend.com have access to hundreds of different private lenders.

So, if you’re looking to renew or refinance a mortgage, contact Canadalend.com today. We’ll evaluate your current financial situation and help you find a lender that can provide you with a financial product that suits your needs. 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.

In your search for a mortgage, you should meet with several lenders to interview them and discuss the terms and process. During this time, you need to properly gauge the terms they are offering and the advice they are giving to guide you through the process. Not all lenders are created equal and the key is to come ready with the right questions to ask.

Here are three questions every applicant should ask a lender during their first conversation.

How to Decide Between Fixed or Variable Interest Rates?

One of the biggest decisions you will make, outside of choosing a home and making an offer, is what type of interest rate to choose. Your lender must have the market knowledge and a sense of how the banks will act to guide you to the best decision for your situation. There’s no one size fits all.

A fixed interest rate means the rate will stay the same throughout the duration of your mortgage. This is a good option if the rate is low and there are signs that it will spike at some point. A variable rate is volatile and can increase or decrease based on what The Bank of Canada does. Typically, you are signing up for a higher rate with the hope that it will drop at some point, meaning you can put more towards the principle.

Can I Pass the Mortgage Stress Test? 

The stress test has been a popular point of discussion since late 2017.  Every lender you meet with should outline the parameters of the stress test. They should also honestly evaluate whether your application could pass with flying colours. A lender should acknowledge when an applicant could have trouble passing the stress test and then offering advice on how to better their application.                                                                        

What’s the Pre-Approval Process?

Finally, inquire about the steps it takes to be pre-approved for a mortgage. Your first conversation with a lender should give you the tools to prepare the best application, as these things are rarely straightforward. Get a list of everything you will need so that you can create a comprehensive checklist. Be sure to ask if there are any tips that can help you get approved.

Contact us today to put these tips into practice and to get more information about mortgage approvals.