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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.

Buying a home can be very exciting; but owning a home comes with new financial responsibilities. One of your biggest financial obligations is to make sure you pay your mortgage on time. Missing a mortgage payment means you are delinquent. If you have a mortgage, it’s important to understand the consequences of mortgage delinquency and how you can avoid it.

Consequences of Defaulting on Your Mortgage

You need to factor in more than the price of your dream home when it comes to figuring out your budget. In addition to your mortgage, you need to consider additional costs associated with home ownership. That includes property taxes, insurance, maintenance costs, and operational costs like hydro. Then there are day-to-day expenses.

If you aren’t prepared or face an unexpected expense, it doesn’t take long to get behind with bills.

When you first got your mortgage, you probably set up a payment schedule of either weekly, bi-weekly, or monthly payments. Regardless of which payment schedule you chose, it’s important to make your mortgage payments on time.

Missing a mortgage payment or even making a late payment is called delinquency. Mortgage delinquency can, at the very least, result in late charges. Late charges for mortgage negligence can be quite steep. Depending on the lender, the longer you are delinquent with your mortgage payment, the higher the late charge climbs.

Mortgage negligence can also link to serious consequences like foreclosure. If you do not get your mortgage payments up-to-date in a timely manner, your mortgage will pass into default, at which point you risk foreclosure. This means you lose your home.

Not only do you lose your home, you face significant financial loss. Defaulting or foreclosure on your mortgage will also negatively impact your credit score. While you may think a bad credit score is the least of your worries, you need to keep in mind that mortgage delinquency today will make it very difficult to get a loan in the future.

If you do manage to get a loan, your previous mortgage negligence means you will pay a significantly higher interest rate.

How to Avoid Mortgage Delinquency

Record low interest rates have made it easier for Canadians to borrow more money from lenders. Low interest rates have also helped fuel the red-hot housing market in the Greater Toronto Area and places like Hamilton.

Rising housing prices means home owners in Toronto are wealthier. At least on paper. That can translate into increased borrowing against your property. And even more debt. This might not be an issue when interest rates are low, but what happens when interest rates start to rise?

For many home owners in Toronto, that could lead to mortgage default. In fact, nearly one in six Canadians (16%) are unable to handle a $500 increase in their monthly mortgage payment. More than a quarter of Canadians (27%) would need to review their budget. And 26% said they would be concerned, but could probably manage. Together, that represents roughly 70% of homeowners!1

The best way to avoid mortgage delinquency, default, or foreclosure, is to make a budget and to stick to it. Review your budget monthly and see if you are meeting your financial obligations.

You also need to plan for operating costs, like maintenance and repairs. Or, if you live in a condominium, that includes monthly maintenance fees. Then there are unexpected fees. Even if you buy a new home, it will need repairs. Unexpected expenses can add up and throw your well-planned budget into disarray.

While it is a great idea to set aside some money for an emergency fund, the fact of the matter is, most Torontonians do not have the luxury of having three months of mortgage payments set aside for a rainy day.

Canadalend.com Toronto’s Leading Provider of Mortgage and Debt Consolidation Loans

Mortgage delinquencies should be avoided at all costs. Not only could you face steep penalties, your credit score could take a serious hit. Mortgage negligence could also lead to foreclosure.

Toronto real estate continues to be an excellent investment opportunity. And with interest rates expected to remain near record lows for the near-term, it’s an excellent time for first-time home buyers to step onto the property ladder.

That said, it’s also important to understand how much of a mortgage you can afford. Interest rates will start to rise. And when they do, you need to know that you can still pay your monthly mortgage as well as the rest of your financial obligations.

The independent, licensed agents at Canadalend.com can help you find the best mortgage at the best rates. They will walk you through the home buying process and make sure your mortgage fits both your near-term and long-term financial and lifestyle goals.

Or, if you find your budget stretched and you are overwhelmed with debt and on the verge of mortgage delinquency or have already missed a mortgage payment, the experts at Canadalend.com can help with debt consolidation.

As the country’s leading private mortgage professionals , Canadalend.com has access to hundreds of lenders. Where Canada’s big banks only try and sell their products, whether they suit your needs or not, the independent agents at Canadalend.com put their clients first.

To see what kind of mortgage or 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:

Nearly one in six Canadians could not handle $500 increase in mortgage payment: poll, The Globe and Mail web site; http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/nearly-one-in-six-canadians-could-not-handle-500-increase-in-mortgage-payment-poll/article26677221/.

Using a private mortgage lender is a great option for those in Vaughan who do not qualify for a mortgage with Canada’s big banks. Unlike traditional lenders, aprivate mortgage loan typically comes from either an individual investor or a group of investors who want to lend to others. On top of that, you are not subject to the same kind of scrutiny as from the banks.

More Canadians Turning to Private Lenders

Canadian housing prices have soared more than 35% since December 2009. Over the same period of time, interest rates have been at record lows. And they are expected to remain so until at least 2017.1 At the same time, changing mortgage rules and banks that have become more conservative mean it’s more difficult for the average Canadian to get a loan.Â

Private mortgages can be a lifeline for those who have been turned down by the banks because of a low credit score or unsteady income. More and more Canadians are turning to private mortgage lenders to make the dream of owning a home a reality.

Today, private mortgage lenders account for around four to five percent of the overall mortgage market. In Ontario, private lenders account for about four percent of new mortgage originations (or $1.1 billion of total mortgage lending by dollar value).2

The fact of the matter is that a private mortgage is a viable option for those who do not qualify under the ever-tightening changing mortgage rules in Canada. For example, in 2008, you could get a 40-year mortgage and buy a home with no money down.

This year, the amortization period for a mortgage has been reduced to 25 years, the minimum down payment for a new government-backed mortgage has been raised to five percent, and the minimum down payment for non-owner occupied properties is at least 20%. And first-time homebuyers need a credit score of at least 620.3

On top of that, the Canadian Mortgage and Housing Corporation (CMHC) discontinued mortgage products for second homes and for those who are self-employed (without third-party validation). Those who are self-employed are asked to make larger down payments, show more documentation, and have even better credit scores.

Benefits of Using a Private Mortgage Lender

Private lenders are perfect for those who do not have a 20% down payment. Where Canada’s big banks will only fund 80% of the purchase price of a property, a private mortgage lender will finance significantly more. They are also a great option for those who are self-employed and cannot prove third-party validation to get a loan.

Keep in mind that private mortgage lenders operate differently from traditional lenders. One big difference is that private lenders get their money from groups of investors or even individual investors.

The application process is also a lot simpler: Instead of having every aspect of your financial life scrutinized like with a bank, when it comes to private lenders, the most important thing is the property you are buying. Because private loans are uninsured, lenders want to ensure the property is a sound investment should a default occur.

As a result, if you live in a small town or rural areas, you may not qualify for as much with private lenders as you would if you wanted to purchase a home in an urban setting like Vaughan.

Ultimately, private mortgage loans can be used by those who need money for a short period of time or those looking to access funds refused to them by the banks.

Canadalend.com Vaughan’s Private Mortgage Lenders

At Canadalend.com , our licensed, independent agents will help you get a private mortgage with the best rates and terms. As the nation’s leading private mortgage professionals, Canadalend.com has access to hundreds of private mortgage lenders who specialize in both residential and commercial loans. In fact, many specialize in helping those who are self-employed, have bruised credit, or have even filed for bankruptcy.

Whether you need a first mortgage , second mortgage , or bridge financing, Canadalend.com will find you a private lender best suited to your financial and lifestyle needs.

To see what kind of private mortgage loan you qualify, contact us today at (905) 881 0242 or info@Canadalend.com. You can also apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation.

Sources:

“Teranet Housing Price Index History,” House Price Index, November 27, 2015, http://www.housepriceindex.ca/.
Hopkins, A., “Ordinary Canadians become bankers as shadow mortgage lending rises to meet housing demand,” Financialpost.com, July 9, 2015, http://business.financialpost.com/personal-finance/mortgages-real-estate/ordinary-canadians-become-bankers-as-shadow-mortgage-lending-rises-to-meet-housing-demand.
“What are the General Requirements to Qualify for Homeowner Mortgage Loan Insurance?” Canada Mortgage and Housing Corporation, November 27, 2015, http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_003.cfm.

A commercial mortgage can help you finance a new property or expand the existing premise. You can also use a commercial mortgage to consolidate your business debts. That said, the criteria for obtaining a commercial mortgage are significantly different from getting a residential mortgage. Commercial mortgage rates are also typically significantly higher than residential rates because of increased risk. But with rates near record lows, it’s still a great time to consider a commercial mortgage with a commercial private mortgage lender .

Getting a Commercial Mortgage in Toronto

A commercial mortgage is a loan taken out on commercial real estate with the property used as collateral. The borrower is a company or business and can be a partnership, limited company, or incorporated.

When it comes to a commercial mortgage, most people think of retail stores, hotels, or a construction site. But a number of different properties can qualify for a commercial mortgage.

For example, in addition to getting a commercial mortgage to finance an office, retail, or industrial property, residential real estate can qualify for commercial mortgage financing if it is being used as an investment property. Even here, residential investment properties are broken down further into three different categories: pure residential, 1-4 units; pure residential, 5 or more units; and residential commercial mix.

That’s why it’s important to identify what type of property you want to finance.

What Do Lenders Look for in a Commercial Mortgage?

While both commercial and residential mortgage loans come from a bank, lending institution, or private lender, the similarities end there.

• A commercial mortgage can only be used toward a commercial building or land zoned for commercial use. You cannot build a home zoned for commercial use. At the same time, you cannot operate a business on land that is zoned for residential use.
• When it comes to getting a commercial in Toronto, lenders will want to know about the business itself. Is it stable and profitable? Lenders may want to see a business plan, financial statement, and future growth projections. They will also want to know that the people running the business have a good credit history as well.
• Lenders also consider the debt service coverage ratio; which is the ratio of available cash to the loan payment required.
• The loan-to-value ratio is also important. That is the mortgage value compared to the assessed value of the property. Most commercial loan-to-value ratios are between 55% and 70%. With a residential mortgage, the loan-to-value ratio can be 80% or higher.
• Commercial mortgage repayment structures are also unique. In a residential mortgage, you accept the terms of the loan and agree to pay it off over a set amount of time. A commercial mortgage has two different components: the amortization (term of the loan) and balloon payment (after which time, the borrower either pays the remaining balance, refinances, or sells the property).

Canadalend.com Toronto’s Commercial Mortgage Experts

Because of all these different factors, it can be difficult to qualify for a commercial mortgage. Businesses that are new, struggling, or heavily indebted may find it difficult to qualify for a commercial loan. Canada’s big banks can also turn you down if they don’t like your credit score.

As the nation’s leading private mortgage professionals , Canadalend.com offers mortgage solutions for commercial mortgages in Toronto, Mississauga, Oakville, Vaughan, Scarborough and the surrounding locations that are ideally suited to meet each client’s cash flow needs.

Using a private mortgage professional like Canadalend.com is imperative for those seeking a commercial mortgage. Unlike residential mortgages, it’s not easy to compare lending rates. In fact, because of the different lending criteria mentioned above, terms and conditions can vary widely. Commercial loan rates are more difficult to figure out because commercial properties are considered to be riskier since the loan repayment is dependent upon how well the business does.

To ensure you get the best commercial mortgage rates and terms possible, it’s better to use the licensed, independent agents at Canadalend.com . Where the big banks will only offer you their own financial products, Canadalend.com has access to hundreds of commercial mortgage lenders. Many of whom provide commercial mortgages to clients with bruised credit or filed for bankruptcy.

No matter what type of commercial mortgage you need, Canadalend.com can get commercial mortgages approved for any amount for business owners in Toronto, Brampton, Mississauga, Markham, Newmarket, and all across Ontario.

To apply for a commercial mortgage, 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.