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

Debt: To consolidate or not to consolidate? That is the question…

 If you are a Canadian living in debt, you are not alone. According to Statistics Canada:

• Household debt grew faster than income last year, with Canadians owing $1.83 for every dollar of household disposable income to debt(1)
• Canadian households use almost 13.48% of income for debt re-payment(2).
• The cost of living is projected to increase in 2022 (2)

And we are all aware inflation and interest rates have been rising rapidly of late. 

What is debt consolidation and how does it help?

Debt consolidation allows you to pay off smaller loans with a larger loan at a lower overall interest rate. This may be an avenue to explore to costs and repay debts faster.

Pros and Cons

Pros

• The lower the interest rate, the sooner you get out of debt. A lower monthly interest allows you to pay more towards your actual loan, getting you debt-free faster.
• You only have to make one monthly debt payment. This is more manageable than keeping track of multiple debt payments with different interest rates.
• Your credit score remains untarnished because your higher interest loans, such as a credit card, are paid off.

Cons

• A larger loan with a financial institution will require prompt payments. If you were struggling to pay your debts before, you may still be challenged with payments unless you qualify for a reverse mortgage.  Reverse mortgages are not always age-restricted, please contact me for more info.
• You may require a co-signer who will have to pay the loan if you’re unable to qualify on your own. Note that the CHIP Reverse Mortgage does not require a co-signer, as long as you qualify.

So how do you know if debt consolidation is the option for you? Contact me any time for assistance in weighing your options. 

SOURCES:

1 Debt-to-disposable-income ratio eases down from record 185% | CBC News

2 Key household debt-to-income ratio down in Q1 as income rises faster than debt | The Star

https://dominionlending.ca/sponsored/debt-to-consolidate-or-not-to-consolidate-that-is-the-question

Increasing Rates

With the rapid increases in interest rates this year, borrowers with static payment variable rate mortgages (VRM) won’t see increases to their regular payments, but those with adjustable rate mortgages (ARM) will.  Both still have the certainty they won’t have higher penalties as they may if they had fixed rate mortgages, but only a VRM has a payment that typically doesn’t change.

VRM Payments Staying the Same

With a static payment, the amounts going toward interest and principal within your regular payment adjusts as interest rates fluctuate, which can affect the amortization (amount of time it will take to the repay the loan) depending on the direction rates move.  Increasing rates can lengthen the amortization unless you make extra payments.  Decreasing rates will decrease the amortization again.

Trigger Rate

As rates rise, the VRM rate may reach a level at which the payment no longer covers 100% of the interest due within a given payment period. When that happens, none of the principal is paid down by the mortgage payment.  One of our VRM lenders calls this the Trigger Rate.  The full amount of the payment would be applied to interest, and the mortgage balance would begin to rise by the amount of the interest owing for the payment period that isn’t repaid.

Trigger Point

This lender will work with the borrower if the balance of the mortgage reaches a point where:

1. the mortgage balance exceeds 80% of the fair market value as determined by the lender for uninsured mortgages
   or
2. the mortgage balance exceeds 105% of the opening balance of the mortgage for insured mortgages.

This lender calls this the Trigger Point.  At this point, the lender will ask their VRM clients to make a lump sum payment, increase their payments, or lock in to a fixed rate mortgage.  Reaching the Trigger Point could take a long time in most cases with a VRM mortgage, but the possibility must be considered in determining the suitability of this mortgage type in your situation.

Creating A Buffer

On a 30 year amortization, paying bi-weekly will knock 4.5 years off the life of your mortgage and will create a buffer for lengthening amortizations, as would making lump sum payments as interest rates rise.  Setting your payment to the fixed rate payment you would have made, had you taken a fixed rate, is another way to build in a buffer.  If you get a raise or bonuses, you could make a few more lump sum payments along the way as well to help keep your principal balance heading in the right direction.

Renewal

When the renewal date arrives at the end of the term, the mortgage reverts back to the remaining original amortization period and the payment is reset based on rates available at that time. If you took a 30 year mortgage and five years passes, your new payment will be based on a 25 year amortization.  If your balance is higher due to interest rate increases, you would have a higher payment at renewal than you might expect.  The extent to which that payment will be higher will depend on your mortgage balance and renewal rates at that time.  Depending on whether you built in a buffer or not, that payment difference can be mitigated by the buffer you build in.

Moving to a static payment variable rate may come at a cost and not mortgages are created equal.  As always, this information is subject to change and lender approval, but let me know if you have questions on whether a static payment VRM would work for you. I am always happy to help.

Transform your vacation rental into a welcoming oasis, on a budget.

Are you dreaming of buying a vacation rental property, have just bought one, or are strongly considering it? If so, your mind is probably abuzz with design ideas and thoughtful touches you could add to the home.

In order to make a rental property into a viable business, you need to set a reasonable budget and stick to it. And everything in the home should be geared towards rental guests. Some elements may not align with how you would design and furnish your own home, but what matters is that it appeals to guests. Keep in mind that as a rental, it has to be able withstand wear and tear, and items should be reparable or replaceable.

Consider learning about who stays in the area, what they value, and how you can tie that in with the character of the home to create a great experience. For example, if guests are typically groups of women between the ages of 25-40 who come to tour wineries and enjoy Instagram-worthy décor, keep that in mind when highlighting and enhancing the natural charm of your property in a way that might suit such a group.

To furnish your vacation rental without sacrificing comfort or experience, there are many different tactics you can employ.

First and foremost, ensure that everything you bring into the home can reasonably be maintained. That means, don’t plant rose bushes if you can’t trim them, don’t bring in a white shag carpet if you won’t be there to vacuum it every day. As a guest, you want to arrive at a home that’s clean and well taken care of.

Re-use, re-purpose, and be thrifty. Everything you bring into the space doesn’t have to be shiny and new. Thrift stores, grandparents’ basements and garage sales can be full of treasures like antique books, frames, artwork, lamps or other accents. Clean them up and paint them, if needed. Placing out a few selectively chosen antiques can add uniqueness and visual interest to the room. For simple items like frames that can easily be painted, it can save you a bundle on decor.

Remove any personal items from the home, such as family photos, paperwork, storage bins, clothing, etc. Leaving these items around will make guests feel like they are intruding on someone else’s personal space; it doesn’t feel like a getaway. That’s not to say that you can’t add personal touches. Keep in mind that personal touches tell a story and are different than personal items.

You can also add homey touches before guests arrive, like a bottle of wine (is there a brand or product that your area is known for?), a hand-written card, a bag of coffee, some toiletries, etc. These thoughtful extra-somethings make the guests feel welcome and valued.

Consider guests’ comfort as they use the house. Ensure the linens are plentiful. That includes towels, hand towels, sheets, blankets, pillows, etc. They don’t have to be pricey linens, IKEA or Costco works just fine. Everyone has their own way of getting comfy on the couch or in bed. Some guests may only want one pillow, while others may want three. Have extras available in a linen closet or shelving area so that they can freely use what they need.

Spills and messes happen, kids may wet the bed, or someone might want to take a nap on the couch, so a few extra blankets, towels, sheets, and pillows will be greatly appreciated. Aim to make the experience as smooth and comfortable as possible.

In addition to comfort, make it as easy as possible too. Provide a house manual detailing everything they need to know about check-in, check-out, info about the home and the area, if certain things are not allowed, how to contact the host, etc. Put helpful labels or markers on closets or storage areas that house extra bedding, kitchen supplies, recycling bins, etc. The goal should be to provide your guests with all the handrails they need to have a fantastic and streamlined experience, without having to call you to ask anything.

Finally, create a statement somewhere in your home that stands out and is memorable. It could be artwork, a wall decal, or mural that your guests want to take pictures of. It could be a really fabulous gallery wall (showcasing all those thrift store frames) that displays your interests and tells a story. Or maybe it’s a stylish and comfy room with plush couches, lots of pillows, blankets, and interesting books.

If you were staying at a vacation rental, imagine what details you would appreciate or want to take a picture of. What type of spaces would you be drawn to relax and unwind in? In my home, I created a room for ultimate relaxation and comfort; it has large, plush couches, tons of pillows, movable coffee tables, and a curtain that runs along the length of the doorway so that you can block out the action happening in the rest of the house. Guests are always drawn to this area because it’s a cozy place to read, hang out or watch a movie.

No matter what your budget is, you can turn your vacation rental into a welcoming oasis that will make guests feel comfortable and valued, and give them a fabulous experience.