This week in our Insurance Primer Series, we’re looking at property insurance.  

Home (Property & Fire) Insurance: Home insurance, as most people know it, must be in place before you complete your mortgage transaction whether you’re buying a property or refinancing it.  Not all homes or properties are insurable, so if you don’t already own the property, you will need to review this before committing to your purchase.  

In addition to protecting against fire damage, home insurance can of course also cover the contents of your home (depending on your policy) and a myriad of expenses should you have to find somewhere else to live while repairs take place after any kind of damage.  Anyone purchasing a condo, townhouse, or any kind of strata property must also consider strata deductible insurance.  If the strata is at fault for damage to an owner’s unit due to shared plumbing for instance, the owner may face a large expense in having to cover the strata’s deductible which can be very high as of late.  Buyers will also want to cover personal belongings or any upgrades. Be sure to check the strata’s insurance policy and take out an individual one on your own unit to cover any gaps.

Additional coverage for natural disasters may also have to be purchased separately.   My insurance contacts have helped many of my clients get the coverage they need in time for their purchase and have provided significant savings in the process.  For any information on mortgages or insurance, please don’t hesitate to call.    

Part I: Default Loan Insurance

The four main insurance product options you will encounter through the mortgage process are often confused for each other, and not all are relevant for every property owner:

Default Loan Insurance, Home Insurance, Title Insurance and Life/Disability Insurance.  This week we’ll review default loan insurance.

Default Loan Insurance: First time home buyers often buy with a lower down payment.  Default loan insurance is mandatory for purchase of homes with a downpayment of less than 20%. This insurance enables lenders to accept a lower down payment, as low as 5% in some cases, helping those just starting out to enter the housing market.  The lender’s interests are protected if the borrower defaults on default insured loans.  As such, lenders can afford to offer lower interest rates are offered on these mortgages.

Default insurance typically requires a premium, which is based on the size of the loan relative to the property value. The premium can be paid in a single lump sum but is typically added to the mortgage balance.

In Canada, we have three default loan insurers: the Canada Mortgage and Housing Corporation (CMHC), which is run by the federal government, and two private companies: Sagen Financial and Canada Guaranty.

Next week we’ll review Home Insurance and how it factors in the mortgage process.  If you or someone you know has mortgage questions relating to insurance or requires other borrowing information, please give me a call any time.

Adapted from DLC Marketing

Most people thinking about transferring or switching their mortgage want to take advantage of a lower interest rate or to get a new mortgage with terms that better suit their needs.

Up for Renewal?

If your mortgage is approaching renewal and you are considering a transfer or switch – great news! You won’t be charged a penalty, and shopping around may more than make up the cost to transfer in interest savings. You will need to qualify at the current qualifying rate and potential costs may include legal, appraisal, and discharge fees.  In some cases, the lender will offer an option to include these fees in your mortgage or even cover some of the costs for you.

Still locked into your Mortgage?

If you’re considering a transfer or switch in the middle of your mortgage term, you will likely incur a penalty for breaking that mortgage. Often, transfers and switches are done to take advantage of a lower interest rate (and lower monthly payments) if the interest savings more than make up the costs.  Others refinance with a new lender to take advantage of the lowest rate possible while paying off debt or accessing equity to make an investment or other purposes.  Requalifying is a requirement in either case.  

If you’re considering a refinance, transfer or switch now or in the future, give me a call to look at your options.  Planning ahead will save you time and interest costs if switching lenders is the right move for you.  

Adapted from DLC Marketing

Buying a home is an exciting experience for anyone, and even more of a milestone when you’re doing it solo, but it can be a little different when you’re purchasing on your own.  

In addition to closely evaluating your mortgage options and working with a trusted realtor, here are some other tips that can help improve your homebuying experience:

1. Understanding Your Financial History

Being aware of your credit score can help to improve your qualification potential.  The details of your credit history will help lenders understand your score and have it accurately reflect your repayment habits. 

2. Ramp Up Your Savings

Of course, while a mortgage will cover a large chunk of your home purchase, you are also required to have a down payment. In addition, you need to consider closing costs, as well as ongoing maintenance and costs for your new home (repairs, utilities, property taxes etc). It is important to determine your budget so you are aware of what you can afford monthly.  Before you shop is a great time to start ramping up your savings account so you can put more down and potentially reduce your overall mortgage.

3. Study The Marketplace

One of the most important aspects of homeownership is understanding what you can afford and where you want to live. These two key components can help you to determine your budget and the areas that you should be looking for a home, as well as what type of home size, amenities, etc. Understanding what is available can provide you with more information and help you fine-tune your shopping list.  Watching what homes are listed for and what they sell for will give you a good sense of market values so you can set your expectations as you shop. 

4. Be Flexible When Possible and Firm When Not

While shopping for a home on your own can be much easier as you’re only concerned about your own needs, it is still important to be flexible. While it is easier to find a home that fits just ‘you’, keeping your options open can also have its benefits. Of course, if there are things you cannot live without or a location you really need to be in, it’s important to be firm about those things as well. Creating a list of wants and needs can help you determine where there is room to be flexible, and where there isn’t.  Knowing what you want will also help your realtor pinpoint suitable properties for you.  

5. Consider Your Present and Future Needs

While you’re shopping for your new home for you today, you will also want to consider what your life might look like in the future. What are you doing 5 years from now? 10 years? Do you want to start a family or have children? Do you plan on changing jobs or perhaps requiring a move in a few years? These may factor into your mortgage choices today to give you the flexibility you need down the road as your property needs change.  

6. Planning for the Future

Lastly, while you might not be purchasing your current home with a partner, it is important to know how residing in your property with a partner in the future might change things for you both as you move into a common-law relationship. Agreements can go a long way to protecting you both, protecting your relationship, and to helping you leverage opportunities together in the future if you plan properly from the start.  

If you are a single homeowner looking to make a purchase, but are not sure where to start, don’t hesitate to reach out to me any time.  I would be happy to walk you through the process and ensure you get the best home and mortgage for you.

Inflation Cooled Again in August, But Higher Rates Still Coming Canada’s headline inflation rate cooled again in August, even a bit more than expected. The consumer price index rose 7.0% from a year ago, down from 7.6% in July and a forty-year high of 8.1% in June, mainly on the back of lower gasoline prices. The CPI fell 0.3% in August, the most significant monthly decline since the early months of the COVID-19 pandemic. On a seasonally adjusted monthly basis, the CPI was up 0.1%, the smallest gain since December 2020. The monthly gas price decline in August compared with July mainly stemmed from higher global production by oil-producing countries. According to data from Natural Resources Canada, refining margins also fell from higher levels in July. Transportation (+10.3%) and shelter (+6.6%) prices drove the deceleration in consumer prices in August. Moderating the slowing in prices were sustained higher prices for groceries, as prices for food purchased from stores (+10.8%) rose at the fastest pace since August 1981 (+11.9%). Price growth for goods and services both slowed on a year-over-year basis in August. As non-durable goods (+10.8%) decelerated due to lower prices at the pump, services associated with travel and shelter services contributed the most to the slowdown in service prices (+5.5%). Prices for durable goods (+6.0%), such as passenger vehicles and appliances, also cooled in August. In August, the average hourly wages rose 5.4% on a year-over-year basis, meaning that, on average, prices rose faster than wages. Although Canadians experienced a decline in purchasing power, the gap was smaller than in July. Core inflation–which excludes food and energy prices–also decelerated but remains far too high for the Bank of Canada’s comfort.  The central bank analyzes three measures of core inflation (see the chart below). The average of the central bank’s three key measures dropped to 5.23% from a revised 5.43% in July, a record high. The Bank aims to return these measures to its 2% target.   Bottom Line Price pressures might have peaked, but today’s data release will not derail the central bank’s intention to raise rates further. Markets expect another rate hike in late October when the Governing Council of the Bank of Canada meets again. But further moves are likely to be smaller than the 75 bps-hikes of the past summer. There is still more than a month of data before the October 25th decision date. The September employment report (released on October 7) and the September CPI (October 19) will be critical to the Bank’s decision. Right now, we expect a 50-bps hike next month.

Courtesy of Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca

Cash Back and Cash Back Mortgages  

How do they Differ?

A “Cash Back” promotion is an offer of funds credited to you after your mortgage completes.  The funds are an incentive for borrowers to move lenders by offsetting the closing costs involved in transferring.  A Cash Back can in since cases impact the mortgage rate, but not always.  Terms can include paying the mortgage from an account held with that lender, or moving some portion of your regular banking to the institution.  Cash Back incentives can be of value and should be evaluated if offered.  

Cash Back mortgages operate like a loan added to the mortgage itself and rates are not always in the borrower’s favour.  Interest rates are higher for these mortgages.  Standard penalties apply if the mortgage is repaid before the end of the term, and a prorated amount of the cash back amount would be due at that point as well.    

Before signing for a Cash Back promotion, or a Cash Back mortgage, it’s best to ensure you understand all of the relevant terms attached with each.  Feel free to reach out to find out more, I’m here to help on any mortgage related questions you may have.  

Adapted From: 

https://dominionlending.ca/mortgage-tips/3-things-you-may-not-know-about-cash-back-mortgages

An investment or rental property can be a great option for generating additional monthly income and growing your wealth over time, if planned properly.

This strategy has multiple options and outcomes that can benefit borrowers such as:

• Supplementing income now and boosting pension in the future, creating more financial freedom
• Allowing you to buy your dream retirement home now and rent it out until you’re ready to use it
• Increasing monthly cash flow for potential expenses beyond retirement savings
• Living in a multi-unit property (such as a duplex or tri-plex) and renting out one or two units

However, before you buy an investment property, there are a few things to know.

1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings. Typically you can’t use a gift from someone else.  Another option is to utilize existing equity by refinancing your primary residence to fund the down payment of your rental or investment property. Closing costs and ongoing repairs and maintenance will need to be planned as well.
2. Only a portion of the rental income can be used to qualify for the purchase. Some lenders will only allow you to add 50% of the rental income to the application, while other lenders may allow up to 80% of the rental income minus expenses. Knowing which lenders recognize more income will allow you to qualify for the most possible.
3. Mortgage rates for a rental property can range from 0.10% to 0.20% higher than on mortgages for a principal residence or second home.

With the right purchase price and rental costs per month, a rental property can be a great way to supplement income and make the most out of your retirement. Not only does the income provide a greater monthly cashflow, but you also will have the ability to sell the property down the line if you so choose. However, bear in mind, the sale will be subject to capital gains tax. Your accountant will be able to help you with that aspect if you do decide to sell in the future.

Before getting started, it is important to calculate the cost of your investment (purchase price and closing costs), and maintenance amounts and compare those to rental potential to ensure profitability before purchasing.

If you’re looking to purchase an investment property, be sure to reach out to discuss your options and understand what is required.  I’m here to help.

Adapted from:
https://dominionlending.ca/life-style/could-an-investment-property-be-your-pension

When you buy an existing property, securing a mortgage approval before you commit to actually proceeding with the purchase takes a few steps. First, you would enter into a conditional purchase agreement with the current owner or builder at an agreed upon purchase price. The agreement would include a subject to financing, giving you time to confirm your mortgage before you pay your deposit to commit to buying the property.

Next, your mortgage application is typically reviewed within a week of entering into the conditional purchase agreement.   After the mortgage is approved, the subject to financing is removed and a deposit is usually due. Reaching this point means you and the owner have finalized the agreement, and the purchase will proceed in a few months or so. Finally, the property will be yours on what is referred to as the ’completion date’.  

A traditional mortgage approval is typically secured within approximately 30 – 120 days of the purchase completion date. 

Pre-construction, or pre-sale purchases, refer to condominiums, townhouses and other new builds, which have purchase agreements made much further in advance of the completion of the property. These purchases are sometimes referred to as pre-sales and can take up to 3 years to complete.

Some buyers will arrange pre-sale financing closer to the completion date of the purchase, and might wait until the property is about 4 – 6 months from completion.

However, as mortgages are subject to lender approval, an advance approval gives you the peace of mind the funds will be available to allow you to finalize on the purchase.

Like a traditional mortgage, the approval on a pre-sale mortgage is determined by your credit score, income-to-debt ratio, your employment history, the property’s value, and its characteristics.

Pre-sale mortgages including both a rate guarantee and an advance approval on the value of the property can in some cases be arranged as early as 18 months before the final purchase date.

Whether you’re seeking a pre-qualification to see how lenders may view your application, or you’re hoping to secure financing now for an existing property or future purchase, please reach out and discuss your options to ensure your plans can proceed smoothly.

Adapted From: https://dominionlending.ca/mortgage-tips/construction-and-pre-construction-mortgages

B.C. enhances consumer protection for homebuyers

A new homebuyer protection period will protect people in B.C. looking to buy a home from being pressured into high-risk sales.

The period is the first of its kind in Canada and marks the first key action the Province is taking based on the B.C. Financial Services Authority’s (BCFSA) report on ways to offer homebuyers better consumer protection in the real estate market. The mandatory three-day period will give homebuyers an opportunity to take important steps, such as securing financing or arranging home inspections, as they prepare to make one of their biggest financial decisions.

“Too many people have been faced with giving up an inspection in order to buy a home,” said Selina Robinson, Minister of Finance. “This is a major step toward providing homebuyers with the peace of mind they deserve while protecting the interests of people selling their homes – for today’s market and in the future.”

The homebuyer protection period will come into effect on Jan. 1, 2023. It includes a recission (cancellation) fee of 0.25% of the purchase price, or $250 for every $100,000, for those who choose to back out of a deal. For example, if the purchaser exercises the right of rescission on a $1-million home, they would be required to pay $2,500 to the seller.

Buyers still may make offers conditional on home inspections or financing at any time. The protection period will offer homebuyers the opportunity for due diligence at times when conditions are not in place.

The homebuyer protection period is informed by the results of consultations that the BCFSA completed this year with a wide range of real estate industry stakeholders, including home inspectors, appraisers, realtors and academics, as well as representatives from the legal and financial services sectors.

The Province will continue studying the BCFSA’s advice and its potential effects to further strengthen public confidence in the real estate market.

Quotes:

Blair Morrison, CEO, B.C. Financial Services Authority –

“Buying and selling a home are the most significant financial transactions in most people’s lives. The parameters to implement a homebuyer protection period, as well as other potential consumer protection enhancements, set forth in BCFSA’s advice to the government, are designed to give British Columbians appropriate time to exercise due diligence. Our advice is based on consultations with over 140 stakeholders, including industry experts and public-interest organizations. We want to promote confidence in real estate transactions and our advice is aligned with that outcome.”

Jonathan Sheppard, president, Home Inspectors Association BC –

“Home inspections help to eliminate some of the potential costly risks involved in purchasing while helping to make an informed decision. Home Inspectors Association BC members are proud that the B.C. government has recognized these risks and again leads the country in consumer protection.”

Andy Yan, urban planner and director of the city program, Simon Fraser University –

“The homebuyer protection period is something that is long coming and much needed as a modernization package for how homes are purchased in British Columbia and for the stability, accountability and transparency of the entire market.”

Tsur Somerville, senior fellow, UBC centre for urban economics and real estate –

“It is important to balance the interests of buyers and sellers. A key objective is to level the playing field and allow buyers to avoid having to make decisions under unreasonable time pressure. It addresses the very important goal that buyers feel trapped into buying a property without an inspection.”

Elaine Spilos, B.C. homebuyer –

“The homebuyer protection period guarantees time for the homebuyer to get the necessary information to make a wise decision.”

Quick Facts:

• BCFSA is responsible for the supervision and regulation of the financial service sector, including real estate professionals, mortgage brokers, insurance, pensions, trusts, credit unions and the Credit Union Deposit Insurance Corporation.
• B.C. will be the first province to implement a homebuyer protection period for resale property and newly constructed homes.
• Cooling-off periods for pre-construction sales of multi-unit development properties, like condominiums, are in place under the Real Estate Development and Marketing Act.

Learn More:

Read the report, Enhancing Consumer Protection in B.C.’s Real Estate Market, here: https://www.bcfsa.ca/media/2861/download

SOURCE: https://news.gov.bc.ca/releases/2022FIN0026-001134