Montreal Real Estate Blog » financing

New Rules for Canadian Mortgages

Deyanira Bautista — Thu, 18 Feb 2010 12:20:31 +0000

You’ve probably read about the new regulations regarding Canadian mortgages for buyers/ investors and home owners wanting to re-finance. In case you haven’t been following, here is the scoop.

Three changes will come in effect on April 19:

Qualification: All borrowers will need to meet standards for five-year fixed-rate mortgages regardless of whether they’re seeking a loan with a lower rate and shorter term.
Refinancing: The government is lowering the maximum amount Canadians can withdraw when refinancing a home to 90% of its value, from the current 95%.
Speculation: It will be required a 20% down payment for government-backed mortgage insurance on “speculative” investment properties. As opposed to 5% down-payment for investments not occupied by the owner.

I’ve posted a list of articles written by the media. You can also check out The Canadian Mortgage Trends for an interesting and detailed post.

Posted By: Deya Bautista - Affiliated Real Estate Agent working as part of the McGill Immobilier team. Specializing in condos and revenue property in the metropolitan area of Montreal. For buying or selling contact Deya at: 514.917.7889

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Wednesday Links: Mortgage Rules in the Media

Deyanira Bautista — Wed, 17 Feb 2010 21:56:56 +0000

Reckless speculators get a cold shower – The Globe and Mail
Ottawa’s decision to hike minimum down payment required to obtain insurance on investment homes likely to have immediate effect.

Don’t worry, home loan rules can still be bent - The Montreal Gazette
The good news or bad news, depending on your perspective, is you can still buy a home in Canada with almost no money…

Home buying rush expected in spring - The Globe and Mail
That may be the calm before the storm. Analysts expect a hot spring real estate market given Finance Minister Jim Flaherty’s move to tighten mortgage standards yesterday.

The trouble with bubbles: They’re elusive – The Globe and Mail
Some say government spending has overinflated global assets; but even the best minds have missed calling most collapses

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Understanding the Home Appraisal Process

Danuta Levitzki — Wed, 02 Dec 2009 14:30:12 +0000

Consumers are often baffled by the home appraisal process. They may feel their home is worth a certain dollar amount, and therefore, the appraised value doesn’t make sense to them. It is important to know that appraisal guidelines are dictated by the lenders.

In many provinces, the lenders must disclose the purpose of the appraisal, as each situation carries its own set of rules. In essence, lender guidelines force appraisers to put a fair market value on a home based upon comparable sales in the area where the home is located, as the home must be bracketed according to size and value.

For example:

There is no set amount associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, and the local marketplace supports the value of a pool at $15,000, that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at full value in newer homes since they required investing additional money onto the cost of building the home. On the other hand, the amount invested in upgrading or remodelling an older home is rarely reflected in full in the final appraisal.
The reason is the home had value in its original condition, and again, the value of the upgrades must be supported by comparable examples within the same marketplace.

These comparisons must be drawn from current market activity within the last six months. Some lenders may want to look at both closed and pending sales to see if there is any room for negotiation. This is a safeguard to prevent appraisers from over-valuing the home in question.

It is further stated in the guidelines that appraisers can only place a value on homes that have status as “closed/funded transactions.” However, when property values rapidly increase within a marketplace, appraisers are generally permitted to make concessions and put more weight on the evidence provided by comparisons to pending sales and listings. This allows for a “real time” appraisal.

Although there is no formal standard to speak of, most lenders give the appraiser a 5% margin of error. If the file is reviewed and the appraiser is off by 8%, there is a good chance the value will be cut by the full 8%. It is in the best interest of both the appraiser and the homeowner not to push the value up higher than the market will support, otherwise the property evaluation may be exposed to a strict appraisal review.

As a loan executive, I make it a point to follow lender guidelines at all times, and work within the systems they provide. This promotes a good relationship with the lender, and smooth closure for my borrowers. As always, you are welcome to contact me if you have any questions.

Call me directly for a free consultation.

Posted By: Danuta Levitzki, Conseillère en Financement Hypothécaire | Mortgage Loan Specialist For current interest rates or to get more information on mortgage financing feel free to visit her website at Hypotheca.net or call direct at 1-800-605-6154.

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What’s the difference between pre-qualification and pre-approval?

Danuta Levitzki — Fri, 06 Mar 2009 23:30:19 +0000

Pre-qualification is the starting point in your search for mortgage financing. A quick snapshot is taken which includes income, existing debt, savings, length of employment, etc. All of these factors will then be analyzed to determine your loan eligibility.

Pre-approval is written documentation that shows you have the support of a lender who is willing to finance you. It means an underwriter has reviewed your loan application. Based on your income, debt ratio and savings, the underwriter provides the dollar amount you are eligible to borrow. Now you can shop around for houses that fit into that loan amount category.

Here is the nice thing about the pre-approval: It gives you the leverage to shop as a cash buyer!

With a pre-approval in hand, you now have the power to negotiate.
The seller will take your offer much more seriously knowing you are already approved by a lender.
Pre-approval can also shorten the time it takes to close, making even a lower bid attractive to sellers who are seeking to move quickly.

What will my monthly payments be?

The amount of your monthly payment depends on what loan program you choose. We like to provide our clients with an easy-to-read spreadsheet that narrows their choices down and compares different loan programs that meet both current and long-term goals. You will have the opportunity to select a program you feel comfortable with before you make an offer on a home.

What does it cost to get pre-approved?

Pre-approval is FREE! You have absolutely nothing to lose and everything to gain

The Benefits of a Professional Consultant

Choosing the right lender is a key element to managing your mortgage. As a mortgage consultant, my goal is not just to provide you with a loan, but also to help select the one most beneficial to you and your long-term goals, and then, help you manage that debt over time. There are not many lenders out there who provide this type of personalized service.

My job is just beginning when your first loan closes. I will continuously monitor rates on your behalf, and stay in touch with you to make sure we remain on target with your financial goals.

Seek Pre-Approval before you begin your home search.
For a free consultation, you can contact me at: 1-800-605-6154

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What you need to know about credit scoring: Part II

Danuta Levitzki — Tue, 09 Sep 2008 13:00:31 +0000

Part II: The Five Factors of Credit Scoring

There are five factors that comprise the credit score. They are listed below in order of importance, just as an underwriter would look at the score:

1. Payment History: 35% impact. Paying debt on time and in full has a positive impact. Late payments, judgments and charge-offs have a negative impact. Missing a high payment has a more severe impact than missing a low payment. Delinquencies that have occurred in the last two years carry more weight than older items.

2. Outstanding Credit Balances: 30% impact. This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home.

3. Credit History: 15% impact. This marks the length of time since a particular credit line was established. A seasoned borrower is stronger in this area.

4. Type of Credit: 10% impact. A mix of auto loans and credit cards are more positive than a concentration of debt from credit cards only.

5. Inquiries: 10% impact. This quantifies the number of inquiries that have been made on a consumer’s credit history within a six-month period. Each hard inquiry can cost from 2 to 50 points on a credit score, but the maximum number of inquiries that will reduce the score is 10. In other words, 11 or more inquiries in a six-month period will have no further impact on the borrower’s credit score.

Remember, a computer that’s not taking any personal factors into consideration calculates these scores. When a credit report is generated, it is simply today’s snapshot of the borrower’s credit profile. This can fluctuate dramatically within the course of a week, depending on the individual’s own activities. The borrower should be made aware of this when they enter into the loan process, and know that it’s not in their best interest to go out on a shopping spree. They need to make sure they are not creating a negative impact on the score while the lender is reviewing their file.

Secondly, it is often beneficial to compile a duo-merge credit report. This provides scores from the two credit bureaus, TransUnion, and Equifax. The lender should be provided with this rounded profile because these two scoring systems can vary in their results.

Stay tuned for Credit Scoring, Part III: Dealing with Challenges

Written by Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist
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What you need to know about Credit Scoring

Danuta Levitzki — Thu, 07 Aug 2008 13:00:47 +0000

Part I: Good Credit Translates into Lower Rates for the Consumer

In the 1960s, Fair Isaac Corporation started working on a system lenders could use to evaluate the likelihood of receiving repayment on loans. Prior to that, it was really a matter of trusting an individual to be a “man of his word,” so to speak. Fair Isaac sought to take human error out of the equation with a reliable system that could determine whether or not consumers were truly worthy of credit, and thus FICO was born. This evolved to become the standard for lenders by the 1980s.

Credit scoring has an enormous impact on a borrower’s ability to purchase a home. It can mean the difference between getting a good interest rate and the home of their dreams, or whether they even qualify at all. For this reason, it is important for borrowers to understand the credit scoring process, and to know what their credit score is when they look to obtain mortgage financing.

What the credit scoring model seeks to quantify is how likely the consumer is to pay off their debt without being more than 90 days late on a payment at any time in the future. Credit scores can range between a low score of 300 and a high of 900. The higher the client’s score is, the less likely they are to default on their loan. Only 5% of the people in Canada have a credit score above 800. These are the slam-dunk clients that walk away with the best interest rates. On the other hand, approximately 4% of the people in Canada are faced with the possibility that they may not qualify for the loan they want because they have a score between 500 and 600.

Stay tuned for Credit Scoring, Part II: The Five Factors of Credit Scoring

Written by Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist
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Should you lock in your mortgage?

Danuta Levitzki — Fri, 27 Jun 2008 15:49:46 +0000

Interest rates are still low, but they’ve been steadily increasing. Here are some points to help you make the right mortgage decision.

If you are buying a home, you may be wondering whether it’s better to lock in a fixed rate in case rates continue to go up, or choose a variable rate that floats with the prime rate. Similarly, if your existing mortgage is variable, you may be wondering whether now is the time to lock in.

Mortgage rates are difficult to predict. It is best to base your decision on your personal situation and comfort level, rather on economic expectations.

Going variable

Variable-rate mortgages can be attractive – the interest rate is lower than for a fixed mortgage of similar size and duration.

With some mortgages, as rates fluctuate, so does the amount of your mortgage payments. Or, with set payment amounts, the portion of the payment that covers your mortgage principal will fluctuate.

In an environment of falling rates, you’ll pay down more principal and pay less interest. But if rates go up, your principal payments will shrink and it may take you longer to fully pay for your home.

Should you choose a variable-rate mortgage? If you can tolerate the uncertainty, the variable rate could save you money over the long term.

Locking in

When you lock in to a fixed-rate mortgage, the interest rate will be higher than for comparable variable-rate products. The benefit, however, is that your rate is fixed for the term of the mortgage.

Even if rates in general rise substantially, your rate is guaranteed not to change. From the moment you lock in, you’ll know exactly what your payments will be and how much of the principal will remain at the end of the term.

Should you choose a fixed-rate mortgage? If fluctuation rates are going to keep you awake at night, then a fixed-rate mortgage may be worth the peace of mind it can give you.

Your decision

Ultimately, the decision to choose a variable or a fixed-rate mortgage is as personal as choosing the right home. It should always be made with informed advice from a professional, who can help you evaluate the options based on your unique circumstances.

For any questions about mortgage financing, programs, options, interest rates etc., feel free to contact Danuta at 1-800-605-6154

Written by Danuta Levitzki.
Conseillère en Financement Hypothécaire | Mortgage Loan Specialist
Visit her website

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