Change Presents Opportunity

Michael Hallett • Jun 01, 2022

Now that the Bank of Canada (BoC) has increased the overnight lending rate another 50-basis point (0.50%) the lenders will (likely) increase the prime lending rate by the same 50 basis points. For lenders with mortgage product that calculate the borrower’s payment based on prime there may or may not be some changes coming to your payment.

 

  • Variable-rate mortgage (VRM) consumers your payment remains static, no change coming unless you manually amend the payment which will assist with maintaining the life of the mortgage/amortization.
  • Adjustable-rate mortgage (ARM) consumers can expect a payment increase of ~$26 per month for every $100,000 borrowed. If a static payment variable-rate mortgage is more desirable, then we should discuss switching your mortgage to a provider that can accommodate.
  • Fixed-rate mortgage consumers, nothing changes with the recent BoC announcement.

 

We discussed ARM vs ARM in our previous article posted on May 24, 2022, LIFE IS VARIABLE. If you missed it, have a read.

 

Fear and uncertainty provoke change which will present opportunities.

 

With the market is shifting it might be time to take advantage of a slightly slower pace. But do not wait too long, many others are thinking the same thing.

 

The equity in your home can unlock an opportunity to increase your net worth by adding to your real estate portfolio. The equity can be used to purchase other real estate properties. That equity, your asset, can be set up to access in the future through a secured line of credit or home equity line of credit (HELOC). Once established it does not cost you anything to keep it at $0, but given an opportunity to purchase, you have instant access to funds.

 

Here is some additional content regarding HELOCs, Financing Solutions – Home Equity Line of Credit. It was published January 2017, but the concept is still relevant today.

 

Below is a random scenario to illustrate how equity can be accessed from your home in the form of a (HELOC).

 

MV of your home based on appraisal            $1,500,000

Max. 80% equity based on MV                        $1,200,000

Current mortgage (non-HELOC)                       $   500,000

Equity                                                                 $   700,000

 

MV = market value

 

New HELOC mortgage structure

 

Registered mortgage                                            $1,200,000

Existing mortgage                                                 $   500,000*

Line of Credit                                                         $   700,000** 

 

*Mortgage payment is calculated either on a variable or fixed-rate mortgage based on the applicable interest rate and amortization.

 

**If you do not draw any funds from the line of credit the there is no monthly cost/payment. Once funds are drawn there is a minimum interest-only payment required based on an interest rate of PRIME plus 0.50%. Prime is current equal to 3.70%. You will also be able to make any principal payment amount without any limits.

 

Now that you have unlocked $700,000, what’s next? Buy another property. Most serial investors employ a simple yet effective concept – BUY (real estate), RENOVATE (it, if it needs it), RE-FINANCE (leverage out the maximum equity), RENT (it out for market value) and REPEAT (the previous 4 steps).

 

If you want to discuss any of what was written above in greater detail or anything else, please feel free to reach out to me anytime, 604-616-2266 or michael@hallettmortgage.com. 

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The Property Matters in Mortgage Financing

By Michael Hallett • 08 May, 2024
When looking to qualify for a mortgage, typically, a lender will want to review four areas of your mortgage application: income, credit, downpayment/equity and the property itself. Assuming you have a great job, excellent credit, and sufficient money in the bank to qualify for a mortgage, if the property you’re looking to purchase isn’t in good condition, if you don't have a plan, you might get some pushback from the lender. The property matters to the lender because they hold it as collateral if you default on your mortgage. As such, you can expect that a lender will make every effort to ensure that any property they finance is in good repair. Because in the rare case that you happen to default on your mortgage, they want to know that if they have to repossess, they can sell the property quickly and recoup their money. So when assessing the property as part of any mortgage transaction, an appraisal is always required to establish value. If your mortgage requires default mortgage insurance through CMHC, Sagen (formerly Genworth), or Canada Guaranty, they’ll likely use an automated system to appraise the property where the assessment happens online. A physical appraisal is required for conventional mortgage applications, which means an appraiser will assess the property on-site. So why is this important to know? Well, because even if you have a great job, excellent credit, and money in the bank, you shouldn’t assume that you’ll be guaranteed mortgage financing. A preapproval can only take you so far. Once the mortgage process has started, the lender will always assess the property you’re looking to purchase. Understanding this ahead of time prevents misunderstandings and will bring clarity to the mortgage process. Practically applied, if you’re attempting to buy a property in a hot housing market and you go in with an offer without a condition of financing, once the appraisal is complete, if the lender isn’t satisfied with the state or value of the property, you could lose your deposit. Now, what happens if you’d like to purchase a property that isn’t in the best condition? Being proactive includes knowing that there is a purchase plus improvements program that can allow you to buy a property and include some of the cost of the renovations in the mortgage. It’s not as simple as just increasing the mortgage amount and then getting the work done, there’s a process to follow, but it’s very doable. So if you have any questions about financing your next property or potentially using a purchase plus improvements to buy a property that needs a little work, please connect anytime. It would be a pleasure to walk you through the process.

Getting a Mortgage While on Parental Leave

By Michael Hallett • 01 May, 2024
Chances are if the title of this article piqued your interest enough to get you here, your family is probably growing. Congratulations! If you’ve thought now is the time to find a new property to accommodate your growing family, but you’re unsure how your parental leave will impact your ability to get a mortgage, you’ve come to the right place! Here’s how it works. When you work with an independent mortgage professional, it won’t be a problem to qualify your income on a mortgage application while on parental leave, as long as you have documentation proving that you have guaranteed employment when you return to work. A word of caution, if you walk into your local bank to look for a mortgage and you disclose that you’re currently collecting parental leave, there’s a chance they’ll only allow you to use that income to qualify. This reduction in income isn’t ideal because at 55% of your previous income up to $595/week, you won’t be eligible to borrow as much, limiting your options. The advantage of working with an independent mortgage professional is choice. You have a choice between lenders and mortgage products, including lenders who use 100% of your return-to-work income. To qualify, you’ll need an employment letter from your current employer that states the following: Your employer’s name preferably on the company letterhead Your position Your initial start date to ensure you’ve passed any probationary period Your scheduled return to work date Your guaranteed salary For a lender to feel confident about your ability to cover your mortgage payments, they want to see that you have a position waiting for you once your parental leave is over. You might also be required to provide a history of your income for the past couple of years, but that is typical of mortgage financing. Whether you intend to return to work after your parental leave is over or not, once the mortgage is in place, what you decide to do is entirely up to you. Mortgage qualification requires only that you have a position waiting for you. If you have any questions about this or anything else mortgage-related, please connect anytime. It would be a pleasure to work with you.
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