Planning for Life’s Unexpected Event(s)

Michael Hallett • Apr 15, 2020
What happens when ‘life’ deals you something unexpected and uncontrollable?

You assess.
You plan.
You adjust.
Then you continue.

There is nothing else we can do in our social state but follow the advice of the professionals. We can,
however, control our response on a personal level and how we shield ourselves economically.
If there is absolutely zero chance you will experience an income disruption caused by this pandemic,
then you might not need to read any further. I know some of you receiving this message work on the
frontline battling this virus head on.

To those people; nurses, doctors, paramedics, firefighters, police, care aids and all other essential
services, THANK YOU! THANK YOU for being you, doing your job and keeping us safe!

The Deferral

First and foremost, if you currently have a mortgage on a property and you have already experienced
income disruption; laid off, reduced hours or tenants cannot pay rent then please accept the
lender/government mortgage payment deferral gift. There is absolutely no shame in accepting this gift.
This was way out of your control. The deferral program is the least expensive capital there is, it starts
with your own money staying in your pocket. Defer for one month. Or defer for six months.

Deferral means to; pause, postpone, delay, suspend.

On one the hand it is complex because the true cost varies depending upon the mortgage amount,
interest rate, remaining term, remaining amortization (life of the mortgage) and of course the lender’s
policy of repayment timing. On the other hand, this deferral a is very simple decision. This is money that
one is paying at approximately 3% interest on…it’s least expensive money you can find out ‘there’ at any
given time.

The Math for The Deferral
Cost of deferring interest $175 per every $100,000 borrowed
Average CDN mtg balance $400,000
Monthly interest deferred $700 ($4,200 over 6 months)
Total monthly payment deferred $2,000 ($1,300 principal and $700 interest)

Cash in hand over 6 months $12,000

The goal of this game is to increase CASH FLOW. During this time, CASH IS QUEEN/KING. The deferral
will be required to be repaid within the term of the existing mortgage. The principal portion of the
payment stays with the client. A basic, yet critical fact that somehow get overlooked. This principal
retention (50% or more of most mortgage payments) is a huge boost to monthly cash flow.

This is a no brainer. Except the gift, save your property!

If you have decided to defer your mortgage payments, I highly recommend that you connect with your
lender online, not by telephone. Most have created online request forms to fill out as wait times have
been reported as high as 6 to 8 hours for a 6 to 8 minute conversation.

The Use of Equity (Savings)
If you currently have a mortgage and are still gainfully employed there are 2 other ways to help you and
your family during these unknown times.
  • 1. Extend your amortization which will decrease your monthly mortgage payment. Then you can increase the payment when life resumes to decrease the amortization or life of the mortgage.
With each standard mortgage hold in Canada there is a term and amortization. The term refers to the
length time the lender will provide the agreed upon interest rate, fixed or variable. The amortization
refers the length of time it will take to pay off the outstanding balance by way of regular payments. If
you have had a mortgage for any length of time, the amortization or life of the mortgage has been
reduced. Rule of thumb, the higher the amortization the lower the payment.

The Math for Increasing Amortization
Increasing from 25 yrs to 30 yrs (decrease) $80 per every $100,000
Average CDN mtg balance $400,000
Monthly increase of cash $320
  • 2. Re-structure your mortgage to establish access to equity in the form of a secured line of credit (LOC). If the funds are not accessed from the LOC, then there is no monthly charge.
To access equity, I highly recommend it is leveraged in the format of a secured line of credit rather than
just a lump sum that is deposited into your account. Unused or non-withdrawn funds from the LOC are
not subject to a monthly repayment. Below is a blog I wrote back in January 2017 that explains how the
Home Equity Line of Credit works. Some of the interest rate values have changed, but the principle
workings and functionality of the mortgage product have not.


As always, please fee free to call, text (604-616-2266) or email (michael@hallettmortgage.com) with any
mortgage related question(s).

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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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