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Access Your Home Equity! COVID-19

Jen & Cory • May 13, 2020

As the initial shock of living through a global pandemic wears off and restrictions start to loosen, it would seem that Canada is en route to de-COVID soon (time will tell).


If you’ve been waiting until things flatten out before making any significant financial decisions, now might be a good to time start working through your options. If those options include accessing the equity from your home; for whatever reason, here are some of the things to consider moving forward.


Expect heightened scrutiny


Due to COVID-19, lenders are currently dealing with a tremendous amount of uncertainty, as many Canadians are still out of work and deferring mortgage payments, appraisal values are in question, and sales in the housing market have slowed down considerably. And for most lenders, the best way to deal with uncertainty is by being cautious.


Moving forward, you can expect heightened scrutiny on any mortgage transaction. Qualification standards are no longer hard and fast rules, but rather guidelines. So although you may qualify to access up to 80% of your property’s value based on the government regulations, depending on the lender, they might only be comfortable lending to 75% or less.


Part of this heightened scrutiny will also include a more in-depth assessment of your employment. Lenders want to see evidence of stable income to ensure you have the means to make your new mortgage payments.


So if you’ve experienced any type of job loss or reduced hours, if you have deferred your mortgage payments, or if you’ve accessed any government relief programs, qualifying to refinance your mortgage won’t be a walk in the park.


55+? Consider a reverse mortgage


For those Canadians 55+ who have significant home equity, a reverse mortgage is worth serious consideration. Qualifying for a reverse mortgage is way less complicated compared to traditional mortgage financing as there are no income or credit requirements. Any money borrowed is tax-free and does not impact CPP or OAS qualifications.


Instead of making regular payments to reduce the total balance outstanding, the interest is added to the total mortgage amount and increases each year.


Accessing home equity, without having to make regular payments, has proven to be the ultimate in cash flow management and a useful tool in helping older Canadians live their desired lifestyle.


You need a plan


Despite the uncertainty, mortgage lenders are still in the business of lending money. It is still possible to refinance your mortgage and access your home equity, but if a lender assesses you’re using your home as a personal ATM, it’s probably not going to work out.


So, the best plan of action is to have a plan of action. That starts with working with an independent mortgage professional who understands the lending landscape and can provide you with mortgage options at many different lenders.


If you have any questions, please don’t hesitate to contact us anytime, together we can look at all your options and figure out a plan going forward.


Jen & Cory
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By Jen & Cory • 15 May, 2024
Your downpayment refers to the initial payment you make when buying a property through mortgage financing. A downpayment is always required when purchasing, because in Canada, lenders are only allowed to lend up to 95% of the property value, leaving you with the need to come up with at least 5% for a downpayment. In fact, securing mortgage financing with anything less than 20% down is only made possible through mortgage default insurance. Canada has three default insurance providers: the Canadian Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada), and Canada Guaranty. There is a cost for default insurance which is usually rolled into the total mortgage amount and is tiered depending on how much you put down. As your downpayment can be a significant amount of money, you probably need a plan to put this money together. So, let’s take a look at some of the options you have to come up with a downpayment. Money from your resources If you’ve been saving money and have accumulated the funds and set them aside for to use for your downpayment, you'll need to prove a 90-day history of those funds. As far as the lender is concerned, this is the most straightforward way to prove a downpayment. Any large deposits to your bank account that aren’t from payroll will require you to prove the source of funds. For example, if you recently sold a vehicle, you’ll need to provide the paperwork as proof of ownership, which corresponds to your account’s deposit. Or, if you have funds in an investment account that you’ve transferred over, statements of that transfer or account would suffice. You have to prove the source of your downpayment funds to the lender when qualifying for a mortgage to help prevent money laundering. Funds from the sale of another property If you’ve recently sold a property and you’re using the proceeds of that sale as the downpayment from your new purchase, you can provide the paperwork from that transaction to substantiate your downpayment. RRSPs through the Home Buyer’s Plan Okay, so let’s say you don’t have all the money set aside in your savings, but you do have cash in your RRSP. Assuming you’re a first-time homebuyer, you can access the funds from your RRSP Tax-Free to use as a downpayment. You’re able to access up to $35k individually or $70k as a couple. The money has to be paid back over the next 15 years. If you’d like more information on what this program looks like, please get in touch. Gifted downpayment Now, if you don’t have enough money in your savings, but you have a family member who is willing to help, they can gift you funds for your downpayment. With the increased cost of living, making it harder to save for a downpayment, receiving a gift from a family member is becoming increasingly commonplace. Now, to qualify, the gift has to come from an immediate family member who will sign a gift letter indicating there is no schedule of repayment and that the gift doesn’t have to be repaid. Proof that the money has been deposited into your account is required through bank statements. Gifted funds can make up part of or the entire amount of downpayment. For example, if you purchase a property for $300k and have $10k saved up, your parents can gift you the remaining $5k to make up the total 5% downpayment. Borrowed downpayment Suppose you aren’t fortunate enough to have a family member who can gift you a downpayment, but you have excellent credit and a high income compared to the amount you’re looking to borrow. In that case, you might qualify to borrow part or all of your downpayment. It’s possible to borrow your downpayment as long as you include the payments in your debt service ratios. Typically this is 3% of the outstanding balance. So there you have it, to qualify for a mortgage, you’ll need to come up with a downpayment. That can be through your resources, a property you sold, an RRSP, a gift from a family member, borrowed funds, or a combination of all five sources. If you’d like to discuss your downpayment or anything else related to mortgage financing; it’s never too early to start the conversation about getting pre-approved for a mortgage. Please connect anytime. It would be a pleasure to work with you!

Pay Down Your Mortgage Faster

By Jen & Cory • 08 May, 2024
Being a home owner is excellent, having a huge mortgage isn’t. So, if you have a mortgage that you’re looking to get rid of as quickly as possible, here are four things you should consider doing. Accelerate your payments Making the change from monthly payments to accelerated bi-weekly payments is one of the easiest ways you can make a difference to the bottom line of your mortgage. Most people don’t even notice the difference or increased payment. A traditional mortgage with monthly payments splits the amount owing annually into 12 equal payments. Accelerated biweekly is simply taking a regular monthly payment and dividing it in two, but instead of making 24 payments, you make 26. The extra two payments accelerate the paying down of your mortgage. Increase your regular mortgage payments Chances are, depending on the terms of your existing mortgage, you can increase your regular mortgage payment by 10-25%. Alternatively, some lenders even offer the ability to double-up your mortgage payments. These are great options as any additional payments will be applied directly to the principal amount owing on your mortgage instead of a prepayment of interest. Make a lump-sum payment Depending on your lender and your mortgage product, you should be able to put down anywhere from 10-25% of the original mortgage balance in a bulk payment. Some lenders are particular about when you can make these payments; however, you should be eligible if you haven’t taken advantage of a lump sum payment yet this year. Making a lump-sum payment is a great option if you’ve come into some money and you’d like to apply it to your mortgage. As this will lower your principal amount owing on the mortgage, it will reduce the amount of interest charged over the life of the mortgage. Review your options regularly As your mortgage payments debit from your bank account directly, it’s easy to put your mortgage on auto-pilot and not think twice about it until your term is up for renewal. Unfortunately, this removes you from the driver's seat and doesn’t allow you to make informed decisions about your mortgage or keep up to date with market conditions. So let’s talk about an annual mortgage review. Working through an annual mortgage review with an independent mortgage professional is beneficial as there may be opportunities to refinance your mortgage and lower your overall cost of borrowing. By reviewing your mortgage at least once a year, you can be sure that you’ve always got the best mortgage for you! There is no cost involved here, just a quick assessment and peace of mind. If you’ve got questions about your existing mortgage or want to compare your mortgage to options available today, please connect anytime. It would be a pleasure to work with you.
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