Choosing a Mortgage That is Right for You

When you buy a home, you may only be able to pay for part of the purchase price. The amount you pay is a down payment. To cover the remaining costs of the home purchase, you may need help from a lender. The loan you get from a lender to help pay for your home is a mortgage.

With a secured loan, the lender has a legal right to take your property. They can do so if you don’t respect the conditions of your mortgage. This includes paying on time and maintaining your home. Unlike other loans mortgages are/may/will:

• be secured by a property
• have a balance owing at the end of your contract
• normally need to renew multiple times until you finish paying the balance in full
• must meet qualification requirements including passing a stress test
• need a down payment
• need to break your contract and pay a penalty
• typically for an amount in the hundreds of thousands of dollars

What to Consider When Getting a Mortgage

When you’re shopping for a mortgage, your lender or mortgage broker will provide you with options. Make sure you understand the options and features. This will help you choose a mortgage that will best suit you and your benefits.

This includes your:

• mortgage principal amount
• amortization
• payment frequency

Your Term:

The mortgage term is the length of time your mortgage contract is in effect. This consists of everything your mortgage contract outlines, including the interest rate. Terms can range from just a few months to 5 years or longer.

At the end of each term, you must renew your mortgage if you can’t pay the remaining balance in full. You’ll most likely be required to many terms to be able to pay everything off.

The length of your mortgage term has an impact on:

• your interest rate and the type of interest you can get (fixed or variable)
• the penalties you must pay if you break your mortgage contract before the end of your term
• how soon you must renew your mortgage agreement

How Your Mortgage Choices Affect Your Future

Mortgage lenders charge a penalty fee when you break your contract. If you sell your home, you could owe the lender thousands of dollars in penalty fees.

Options related to mortgage flexibility include if your mortgage:

• is open or closed
• is there a penalty to break the term
• how is that penalty calculated if broken
• is portable
• allows you to borrow more money if the mortgage is ported to another property that is being purchased
• is assumable
• has a standard or collateral security registration

Opened Mortgages (aka Secured Lines of Credit):

The interest rate in most cases is usually higher than on a closed mortgage with a comparable term length. This allows more flexibility if you plan on putting extra money toward your mortgage.

An open mortgage may be a good choice for you if you:

• plan to pay off your mortgage soon
• plan to sell your home soon
• think you may have extra money to put toward your mortgage from time to time

Closed Mortgages (aka Fixed and/or Variable):

Closed term mortgages usually limit the amount of extra money you can put toward your mortgage each year. Your lender calls this a prepayment privilege, and it is included in your mortgage contract. Not all closed mortgages allow prepayment privileges. This can vary from lender to lender.

A closed mortgage may be a good choice for you if:

• you plan to keep your home for the rest of your loan’s term
• the prepayment privileges provide enough flexibility for the prepayments you expect to make

It is PARTICULARLY important to have a clear understanding of the implications when it comes to choosing the right mortgage that’s best for you. It makes a significant difference in future planning and can impact you in incredibly substantial ways.

At GLM Mortgage Group, we know what questions to ask. We have relationships with the lenders that you know about and the lenders you don’t. We would be pleased to educate you on the financial options available to you. We want you to make the best decision possible on the mortgage that you are committing to. Call us anytime for a FREE consultation on the mortgage products available to you.

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All About Variable Rates

Variable rates are based on Prime Rate and the Bank of Canada’s overnight rate, can cause fluctuating or static payments. These payments have cheaper penalty when breaking your mortgage.

The banks generally change their prime rates a few days after the Bank of Canada sets its interest rate target for this overnight rate. In other words, when the overnight rate goes up, the prime rate will follow suit, and when it goes down, prime rate will soon follow.

What is a Variable Rate?

A variable rate is slightly lower than a fixed rate in most cases. One of the major risks to a variable rate is that your monthly payment will increase due to the fluctuations. This also means that your rate will most likely change with these inflations. A couple of reasons why a variable rate might be the best fit for you:

• You’ll have a flexible budget and feel comfortable with fluctuating interest rates
• You want to pay mortgage off quickly

Pros:

• Potentially lower costs over time. If interest rates remain the same or fall during your term, you’ll pay less interest with a variable-rate mortgage than you would with a fixed-rate mortgage.
• Minimal break penalties. Most lenders charge three months of interest if you need to break your variable-rate mortgage contract.
• Ability to switch to a fixed-rate mortgage. Many lenders will allow homeowners with a variable-rate mortgage to change to a fixed-rate mortgage at any time.

Cons:

• Lack of stability. If interest rates rise, you could end up paying more than you would have with a fixed-rate mortgage.
• Converting could cost you more. If you convert to a fixed-rate mortgage, it will be at the current interest rates — which might be higher than they were when you took out your mortgage.

Types of Variable Rates

When it comes to choosing a variable rate, there’s two common types of a variable rate: static variable and floating variable. Rising rates aren’t just for concern for homeowners, but also causes concern to investors and real estate professionals who rely on the industry and may also be facing uncertainty.

Static Variable:

• The answer is a variable-rate mortgage where payments stay the same instead of rising to reflect higher borrowing costs. Static payments mean your lender is using more of your payment to cover your rising interest costs and applying less against principal.

Floating Variable:

• When prime rate went to a historical low during the pandemic, it lowered mortgage rates for thousands of variable-rate holders. Some are now enjoying floating rates as low as 1.50%.
• But for new borrowers, variable rates have largely lost their appeal since prime rate has very little room left to fall, if at all.

It is PARTICULARLY important to have a clear understanding of the implications when it comes to variable rate mortgages and what’s best for you. It makes a significant difference in future planning and can impact you in incredibly substantial ways.

At GLM Mortgage Group, we know what questions to ask. We have relationships with the lenders that you know about and the lenders you don’t. We would be pleased to educate you on the financial options available to you. We want you to make the best decision possible on the mortgage you are committing to. Call us anytime for a FREE consultation on the mortgage products available to you.

The post All About Variable Rates appeared first on GLM Mortgage Group.

Increase of Prime Rates – What Does This Mean?

With the increase of prime rates over the last few months, there’s a lot in question. Many people are questioning if they should have a fixed rate mortgage or a variable rate mortgage. There are many factors to consider when choosing between fixed and variable rates, this blog will help make your decision more simplistic.

Pros and Cons

When looking at which rate to choose, you’ll need to consider the pros and cons of both rates, and what may be the most beneficial for your mortgage financially.

1. Pros and cons of a fixed rate

• Pros
  • You have stability for the term of your mortgage. Your mortgage payment will remain the same and there will be no charge to your mortgage payment each month.
• Cons
  • A fixed rate is typically higher than a variable rate
  • If you were to break your mortgage you may be charged at interest rate differential. An IRD can be a significant cost and it is typically 4.7% of the balance. This works out to $4,700.00 for every $100,000.00 that you have borrowed.

2. Pros and cons of a variable rate

   • Pros
     • A variable rate is typically lower than a fixed rate.
     • Statistically a variable rate has outperformed the fixed rate for the last 40 years.
     • You have the option to lock into a fixed rate at any point in the term of your mortgage at no cost.
     • If you break the term of your mortgage early your penalty is almost 3 months interest.
   • Cons
     • Your rate will change as the Bank of Canada adjusts the prime rate.
     • Pending on the lender your payments can fluctuate.
     • As prime rate changes the amount going to interest and principal will vary.

Which Rate Is Best for You?

Look at the case study below:

Prime Increase of 0.75%

• The lowest 5-year variable rate is 3.75 with a monthly payment off $2,123.36
• For every $100,000 mortgage the monthly payment increases by $26.00
• If you have a mortgage of $413,000 your monthly payment will increase by $107.38
• The monthly payment will come out to be $2,230.74

Fixed Rate – Should You Lock In?

• Todays best 5-year fixed rate is 5.63%
• For a Mortgage of $413,000 – monthly payment will equal to $2,568.34
• This monthly payment is HIGHER with the Bank of Canada increase to Prime by 0.75%
• Continue to choose variable!

It is PARTICULARLY important to have a clear understanding of the implications when it comes to choosing between variable mortgage rates and fixed mortgage rates and what’s best for you. It makes a significant difference in future planning and can impact you in incredibly substantial ways.

At GLM Mortgage Group, we know what questions to ask. We have relationships with the lenders that you know about and the lenders you don’t. We would be pleased to educate you on the financial options available to you. We want you to make the best decision possible on the mortgage that you are committing to. Call us anytime for a FREE consultation on the mortgage products available to you.

The post Increase of Prime Rate Mortgages – What Does This Mean? appeared first on GLM Mortgage Group.

In recent weeks the fears of rising interest rates and a dooming recession being upon us is something that is catching the eye of Canadians country wide. The Bank of Canada rate increased in the beginning of July after a big inflation increase in June that saw inflation jump as high as 8.1%. 

The Bank of Canada’s full-percentage-point hike this week is expected to deepen the chill in the country’s housing market and reinforce the view that property values will decline. Higher interest rates will continue to increase borrowing costs, making it harder for homebuyers to qualify for a mortgage, while all homeowners with a mortgage will eventually have to pay more for their loans.

“Until progress can be made in bringing inflation down, interest rates will have to remain high,” Gerald Bouey told the crowd at the Men’s and Women’s Canadian Clubs.

It is important to look back at history to help understand prominence. In September of 1981 – consumer prices were soaring, unions were demanding higher wages, and the Iranian revolution had sparked a global oil shortage that sent the price of fuel skyrocketing. The only way to help temper the chaos at home, Governor Bouey held, was to make it harder for Canadians and businesses to borrow. In the two years that followed, the bank’s strict monetary policy helped lower inflation by nearly 8.5%, but it is important to understand that it did trigger a recession. That is because as interest rates climbed, the national GDP shrank for months on end while the unemployment rate rose to 12% – 860,000 Canadians out of work. 

It is essential to understand that policymakers are hoping to engineer a “soft landing” for the Canadian economy that cools consumer prices without provoking a recession. Unfortunately, history points to the probability of avoiding a recession at nearly 0% since “there is simply no historical precedent for the Bank of Canada engineering through rapid interest rate hikes – which it appears to be set on doing now – it has resulted in a crash landing,” said by a senior economist, David Macdonald.

The Bank of Canada wants to see inflation fall by roughly 5.7% – from its May value of 7.7% to its target of 2%. In Macdonald’s study, Canada has lowered inflation by 5.7% or more three times: once in the mid ‘70s, again in the ‘80s and finally in the early ‘90s. Unfortunately, after each of those times a recession was triggered, and the employment rate fell putting hundreds of thousands of Canadians out of work each time. 

On the positive note, Macdonald’s study does conclude that by raising Canada’s target inflation rate to 4%, while still seeking to lower inflation from 7.7%, the Bank of Canada would have a much better chance of avoiding a recession, Macdonald’s study concluded.

“When the economy hits a rough patch, consumption tends to fall. Businesses then cut production, leading to more job losses and a deeper downturn. So, it’s critical for governments and central banks to understand what’s happening at the household level. This helps them better tailor their policies to cut the length and depth of recessions,” the bank said.

It is important to acknowledge what we may see in the near future to better equip our mindset moving forward. The Bank of Canada already acknowledges that a recession is likely on the horizon, but how it will affect people will be dependent on income, gender, age, race and other factors.

We will continue to update you as we want you to feel most aware of the changes coming and the effect it will have on the near future.

The post Rising Interest Rates appeared first on GLM Mortgage Group.

A mortgage is a type of loan that is used to purchase or refinance property. A few basic features of a mortgage include the purchased property, which is always used as collateral, and regular payments to the lender are required. Mortgages can sometimes cover the cost of property taxes and insurance premiums. Mortgages are quite substantial monetarily. You can even get a mortgage that is worth millions.

Fixed vs Variable Interest Rates

A fixed interest rate means that the interest rate applicable to your mortgage will be consistent throughout the mortgage’s life, regardless of any external activity. A variable interest rate will change as your bank’s prime rate changes. More indicatively, the interest rate fluctuates based on the decisions the Bank of Canada will make. The Bank of Canada will make their decision based on how the economy is, this way your mortgage interest rate will essentially fluctuate based on external activity. Generally, when the prime rate increases, your mortgage variable rate will increase. Therefore, when the prime rate decreases, your mortgage rate will decrease.

It’s difficult deciding between a fixed and variable interest rate when looking into a mortgage. It’s a tough decision to make, due to the not knowing what the future holds for any mortgage and whether the future has a great impact on interest rates. If you feel that economic conditions will be favourable in the future, it’s best to go with a variable interest rate. In other cases, if you feel the economic conditions will be unfavourable, it’s better to go with a fixed interest rate.

Open vs Closed Mortgages

Having an open mortgage means you can pay off your mortgage balance early without any penalties. A closed mortgage only allows for a certain amount of payment each year, in addition to the regular payments. Although, some closed mortgages will not allow lump sum payments at all.

Borrowers usually choose a closed mortgage because they have lower interest rates. Closed mortgages have lower interest rates because the lender won’t have to worry about the lost interest if a borrower were to pay off the loan early. However, if you expect that you will have the money to make large lump sum payments towards your mortgage, then going for an open mortgage is a better option. Lump sum payments go towards the principal balance only, you will end up paying less interest overall this way.

Property Transfer Tax:

• Property Transfer Tax is a one-time tax paid to Province of BC by the purchaser whenever there is a change of ownership or change in shared % interest in a property.
• Property Transfer Tax is calculated based on the fair market value of the property at the time of transfer.
• The percentage of the tax that you owe is based on the % shared ownership or shared interest you have.

  One important point to keep in mind is that Property Transfer Tax is provincial and is NOT the same as the annual Property Tax which is paid to the local municipality every year.

Steps Included In Getting A Mortgage

Pre-Qualification: This is ideal when you’re only thinking about buying a home. A lender will collect basic information about your finances and then give you an approximate figure for how much they’d potentially be willing to lend you to buy a property.

Pre-Approval: Getting pre-approved for a mortgage is more formal than pre-qualifying. In this stage a lender will verify the financial information you provide them and run a credit check. If you’re pre-approved it indicates that the lender is committed to providing you with a loan, though the final amount they’re willing to lend you and the terms of the mortgage are subject to change based on an actual property valuation as well as market fluctuations.

The Mortgage Stress Test: This is a calculation of whether you can still afford to pay your mortgage if rates increase. The results of this stress test will determine your qualifications for the mortgage you’re looking to take and applies to all home buyers, and what we need to do for debt servicing, including those who make a 20% down payment on their home.

Down Payment: This is the amount of money you’re required to pay upfront when buying real estate. The bigger your down payment, the smaller the mortgage you’ll need. For example, if you spend less than $500,000 on a home, you’re only required to put 5% of the purchase price down.

Mortgage Rate: This is the interest rate you’ll pay on your mortgage. This will determine how much you pay in interest over the life of your mortgage. Your mortgage rate may change depending on if it’s fixed or variable.

Closing Costs: These are expenses that you’re required to pay out of pocket leading up to your closing date. Examples of closing costs include legal fees, appraisal fees, title insurance, a home inspection, and movers. It’s a good idea to budget between 1.5% and 4% of a home’s purchase price towards closing costs.

It is VERY important to have a clear understanding of the implications when it comes to important factors to getting a mortgage and how it can affect you. It makes all the difference in future planning and can impact you in very significant ways.

At GLM Mortgage Group, we know what questions to ask. We have relationships with the lenders that you know about and the lenders you don’t. We would be pleased to educate you on the financial options available to you. We want you to make the best decision possible on the mortgage that you are committing to. Call us anytime for a FREE consultation on the mortgage products available to you.

The post Guide To Getting A Mortgage In 2022 appeared first on GLM Mortgage Group.

Federal Budget Updates 2022

This bright industry is constantly evolving and growing at a rapid pace. In our previous Federal Budget Updates blog from 2019, we had discussed updates that were made to the CMHC First Time Home Buyer’s Incentive Plan and Home Buyer’ plan RRP Increase. We will be diving a bit deeper into a few key updates from 2022. As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding the Federal Budget Updates 2022.

On April 7, 2022, the Deputy Prime Minister and Finance Minister, the honourable Chrystia Freeland, presented Federal Budget Updates 2022: A Plan to Grow Our Economy and Make Life More Affordable, to the House of Commons. No changes were made to personal or corporate tax rates, nor to the inclusion rate on taxable capital gains.

Some highlights that are included in this Federal Budget Updates are:

• Federal Budget Updates: Retirement Plans

  • Borrowing by Defined Benefit Pension Plans

    • Budget 2022 proposes to provide more borrowing flexibility to administrators of defined benefit registered pension plans (other than individual pension plans) for amounts borrowed on or after April 7, 2022

  • Reporting Requirements for RRSP’S AND RRIF’S

    • Budget 2022 proposes to require financial institutions to annually report to CRA the total fair market value of property held in each RRSP and RRIF at the end of the calendar year. This information would assist CRA in its risk-assessment activities regarding qualified investments held by RRSPs and RRIFs. This measure would apply to the 2023 and subsequent taxation years

  • Federal Budget Updates: Personal Measures

    • Homebuyer’s Tax Credit

    • By claiming this credit, first-time homebuyers can obtain up to $750 in tax relief as a non-refundable tax credit. Budget 2022 proposes to double the Home Buyers’ Tax Credit amount such that eligible homebuyers can access tax relief of up to $1,500. This measure would apply to acquisitions of a qualifying home made on or after January 1, 2022.

    • Multi-Generational Home Renovation Tax Credit

    • Budget 2022 proposes a new refundable tax credit to support constructing a secondary suite for an eligible person to live with a qualifying relation. An eligible person would be a senior (65+ years of age at the end of the tax year when the renovation was completed) or an adult (18+ years of age) eligible for the disability tax credit. A qualifying relation would be 18+ years of age and a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the eligible person (which includes the spouse or common-law partner of one of those individuals). This tax credit would provide tax relief of 15% on up to $50,000 of eligible expenditures, providing a maximum benefit of $7,500.

    • Tax-Free First Home Savings Account (FHSA)

    • See below…

The Federal Budget Updates 2022 propose to create the Tax-Free First Home Savings Account to help first-time homebuyers save up to $40,000 for their first home. Contributions to an FHSA would be deductible (like an RRSP), and income earned in an FHSA and qualifying withdrawals from an FHSA made to purchase a first home would be non-taxable (like a TFSA).

The lifetime limit on contributions would be $40,000, subject to an annual contribution limit of $8,000. Unused annual contribution room would not be carried forward. Individuals would also be allowed to transfer funds from an RRSP to an FHSA tax-free, subject to the $40,000 lifetime and $8,000 annual contribution limits.

Withdrawals for purposes other than to purchase a first home would be taxable. However, an individual could transfer funds from an FHSA to an RRSP (at any time before the year they turn 71) or an RRIF on a non-taxable basis. Transfers would not reduce, or be limited by, the individual’s available RRSP room. Withdrawals and transfers would not replenish FHSA contribution limits.

Individuals would not be permitted to make both an FHSA withdrawal and a home buyers’ plan withdrawal concerning the same qualifying home purchase. If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of opening an FHSA, their FHSA would have to be closed. Any unused funds could be transferred into an RRSP or RRIF or would otherwise have to be withdrawn on a taxable basis.

The Federal Budget Updates would work with financial institutions to allow individuals to open an FHSA and start contributing in 2023.

 It is VERY important to have a clear understanding of what these Federal Budget Updates are and how they can affect you. It makes all the difference in future planning and can impact you in very significant ways.

At GLM Mortgage Group, we know what questions to ask about the Federal Budget Updates. We have relationships with the lenders that you know about and the lenders you don’t. We would be pleased to educate you on the financial options available to you. We want you to make the best decision possible on the mortgage that you are committing to. Call us anytime for a FREE consultation on the mortgage products available to you.

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Personalities of Your Mortgage- Blend & Extend

Asking the right questions is an important part of the mortgage process, it allows you to learn and understand which mortgage product is right for your situation! An important aspect of a mortgage is its flexibility and terms, such as how the penalty is calculated if you break your mortgage. Keep in mind that statistically, 70% (7 out of 10 people) of mortgages are broken within the first 3 years. As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Blend & Extend products.

This could be due to a variety of reasons; in our previous blog on Personalities of Your Mortgage, we went over many personalities and now are going to focus on the Blend & Extend Products and avoiding the “pre-payment penalty”.

There is one popular and “under-utilized” option you can access to refinance and access your equity and/or get a lower mortgage rate, without having to pay the prepayment penalty. This product is called a Blend & Extend (Blended Mortgage) mortgage.

A Blend & Extend Mortgage is when you combine the mortgage rate from an existing mortgage with the mortgage rate from a new mortgage and blend them into a new rate that is somewhere in-between the two. Because you’re essentially “keeping” your existing mortgage rate in this new blended rate, rather than breaking your mortgage term altogether, you can avoid the prepayment penalty that comes with a typical refinance. With Blend & Extend mortgage, you wouldn’t get the absolute best mortgage rate on the market, but you also save your money on the penalty payment.

You could break your mortgage if you wanted to access a lump sum of equity and/or obtain a lower rate in a new mortgage. Breaking your mortgage means you’re paying off your current loan and setting up finance for a new mortgage. Doing this will result in a pre-payment penalty – and, depending on your mortgage rate and how much time is left in your mortgage term, it can add up quickly.

If you had a fixed-rate mortgage, your penalty would be the greater of three months’ interest or the interest rate differential (IRD). If you had a variable rate mortgage, your penalty would be three months’ interest. If the potential savings outweigh the penalty, or if the value to you in withdrawing that money is high, it might be worth paying the fee. However, there are still other options to consider.

Let’s say you owe $250,000 on your mortgage, and you have two years remaining on a 5-year term with a fixed rate of 4.50%. Through a refinance, you could take on a new 5-year fixed term at just 3.39%. However, to get that rate, you’d have to pay a prepayment penalty of $10,325.

To avoid that fee, you could instead blend your existing mortgage rate with the new mortgage rate, for a new 5-year fixed term at a rate somewhere between 3.39% and 4.50%. So, not only have you “blended” the two rates, you’ve also avoided having to refinance your mortgage and pay a penalty to do so. See below for example:

4.50^% existing rate    →   3.83^% blended rate  ←   3.39^% new 5-yr rate

If you had also decided to access some equity in this refinance and chose a Blend & Extend product, your blended rate would be even more weighted against current market rates, because your total mortgage amount, monthly payment and overall interest would’ve gone up, giving the lender more money from you in other ways.

 It is VERY important to get clear answers on what the terms of your Blend & Extend Mortgage are. It makes all the difference in future planning and can impact you in very significant ways. Of course, the rate is important. Whether it is a penalty to break, restrictions on porting or assumptions, or even an administrative cost. Always be sure to find out the specifics of Blend & Extend as well as all the various Personalities of Your Mortgage.

At GLM Mortgage Group, we know what questions to ask. We have relationships with the lenders that you know about and the lenders you don’t. We would be pleased to educate you on the financial options available to you. We want you to make the best decision possible on the mortgage that you are committing to. Call us anytime for a FREE consultation on the mortgage products available to you.

The post Personalities of Your Mortgage- Blend & Extend appeared first on GLM Mortgage Group.

Rent to Own Mortgage

A Rent to Own contract could be the answer for someone who is renting but is also having a hard time getting their down payment together. Rent to Own contracts usually are between 1 and 5 years long and can give the client the time they need to implement strategies on increasing their down payment or even improving their credit.  As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Rent to Own Mortgages.

In the Lower Mainland, Rent to Own is becoming more popular as housing prices are increasing, and renting seems inevitable. In fact, there are properties that are being built with Rent to Own financing in mind.

Initially, the contract is signed just between the renter (the buyer) and the Landlord (the seller) that states an agreed price, length of time of Rent to Own, and market rent (typical rent of a similar property) with the excess going toward down payment (usually $200 – $400/month). The lender is not involved yet.

For example, market rent for your property goes for around $1000.00. You agree to pay the Landlord $1400.00/month. The extra $400/month goes into an account that the Landlord has in place for you for the down payment. This is a great example of  a Rent to Own situation.

Regardless of the lender, the Landlord must keep pristine records of the extra money coming in and can show the history of any excess deposit. When the Rent to Own is registered on title, there will be a clear indication as to how much of the monthly payments are directed toward the deposit.

The client will want to work with a team of property purchase professionals that will strategize Action Steps to make a seamless Rent to Own experience. The client`s team would be:

1. MORTGAGE PROFESSIONAL

• Get pre-approved! In the pre-approval process, the Mortgage Professional will be able to advise on improving credit or the need to increase employment income if need be.
• As well, the Mortgage Professional understands lender policies and guidelines for Rent to Own contracts and will be able to advise on how to properly set up the Rent to Own.

2. SOLICITOR/LAWYER

• Make sure that your lawyer is familiar with Rent to Own contracts and that they work closely with the Mortgage Professional who knows what the lender is going to expect. This relationship is very important and one that should not be overlooked.

The down payment continues to grow over the life of the Rent to Own contract. At any time, you can add lump payments to the down payment, simply by giving the Landlord a bigger rent check. Keep in mind, the Rent to Own contract could stipulate that the down payment is non-refundable. Make sure you read the fine print and work closely with your mortgage professional and lawyer so that you clearly understand the terms of your Rent to Own contract.

The bank does not get involved until the time the renter (the buyer) makes an offer to purchase to the Landlord (the seller). The person paying for the rent to own does not have to qualify for a mortgage at this point because the Landlord continues to carry the mortgage on the property.

Rent to Own Properties can also be facilitated through a company such as a condominium developer. For example, the developer could offer a Rent to Own contract when entering a rental lease with an owner-occupied property that the client wants to rent.

The client may be charged a contract fee upfront (for example $10,000) to enter the Rent to Own contract. At times all or a portion of this contract fee can be used toward the down payment pending on what has been negotiated within the Rent to Own contract.

Over the course of the Rent to Own some of the obstacles to financing you will consider are:

• How to improve your credit rating
• Consider applying for an RRSP loan to further establish credit and take advantage of tax benefits
• Consider refinancing any outstanding credit
• Consider job changes to increase employment income
• Consider other sources to increase down payment

Rent To Own contracts are more than just paying rent to the Landlord and applying the rent toward the purchase of the property. There are details that you need to know when entering into a Rent To Own Contract. If you need help setting up a Rent to Own contract or for more information regarding this topic please reach out.

GLM Mortgage | Dominion Lending Centres is here to walk your mortgage planning path with you. Give us a call at 604-259-1486 and find out what your mortgage options are!

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Banks VS Credit Unions

Finding somewhere to trust with your life savings and all personal information can be a big decision. Two of the most common types of facilities that are around to help are either Banks or Credit Unions. Banks VS Credit Unions… What is the main difference between the two you ask? To keep things simple, one of the biggest differences is that a Bank is FOR profit and a Credit Union is NON profit.  As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding the difference between Banks VS Credit Unions.

Banking is a financial system in which regulated institutions partake in accepting deposits, lending money, and transferring funds.

Canadian banking system groups financial institutions into five main categories:

• Chartered banks
• Trust and Loan companies
• The Cooperative Credit Movement
• Insurance Companies and
• Securities Dealers

The Big Five banks listed below dominate Canada’s financial ecosystem:

• Royal Bank of Canada (RBC)
• Toronto-Dominion Bank (TD)
• Bank of Nova Scotia (Scotiabank)
• Bank of Montreal (BMO)
• Canadian Imperial Bank of Commerce (CIBC)

In Canada, credit unions are regulated at a provincial level and either Provincial corporations or non-government insurers insure deposits made into the organization and can offer mortgages to borrowers who would not pass the current mortgage stress test. Yes, they can approve a mortgage application without a stress test.

There are many similarities between a bank and a credit union as a financial institution, which operates under similar regulations pertaining to loans, mortgages, and security. In terms of financial products, credit unions vs banks debate is irrelevant because you will likely find your banking needs at both credit unions and banks.

• Checking accounts
• Savings Accounts
• Loans
• Credit cards
• Mobile Banking
• ATM facilities

However, there are also a variety of differences such as:

1. Ownership
   1. The main difference of ownership between a bank and credit union is that Banks are for-profit and Credit unions are non-profit.
2. Membership
   1. Banks can do business with any customer if they do not have a history that challenges financial or legal regulations, whereas Credit Unions can only do business with their internal members.
3. Customer Service
   1. Banks offer 24/7 call centers with support available in multiple different languages. Credit Unions may not offer 24/7 support but usually can offer their members fasters personalized services at a quick pace.
4. Interest Rates
   1. Generally speaking, Banks do have lower interest rates than Credit Unions.
5. Fees
   1. Credit Unions often have lower and fewer fees than traditional Banks, however, Banks have more financial products in their portfolio.
6. Tax
   1. Banks are liable to taxation whereas Credit Unions are tax-free.
7. Regulatory Bodies
   1. Banks need to follow the guidelines and restrictions put into place by the following companies: Minister of finance of Canada (Finance Minister), Office of the superintendent of Financial Institutions (OSFI), Bank of Canada, Canada Deposit Insurance Corporation (CDIC), and Financial Institutions Supervisory Committee (FISC). Whereas Credit Unions are chartered and regulated provincially, that means they are subject to provincial deposit insurance regimes.
8. Insurance
   1. Banks provide insurance by the Federal Deposit Insurance Corporation (FDIC) and Credit Unions provide insurance by the National Credit Union Administration (NCUA).

There are several advantages of a credit union mortgage as opposed to a large, federally regulated bank…

1. Easier approval processes

This is primarily because credit unions hold the loans that they originate whereas banks often take mortgages off their own books by selling them to outside investors. As such, these investors are often the ones that influence the interest rate charged as well as underwriting standards. This means that banks will typically have far less power to be flexible with their lending in terms of the rates offered and who they can lend to.

2. Reduced rates

This member-focused mandate further helps mortgage borrowers to secure lower rates on their mortgages. Credit unions are largely designed to break even on their costs and are not taxed at a federal level.

3. Customer service

At a credit union, loan officers generally have a smaller portfolio of clients than banks. This enables a more personalized experience when originating a new mortgage.

4. No Mortgage Stress Test

That’s right! Credit Unions can approve a mortgage application without the need for a mortgage stress test. This does come with a slightly higher interest rate, but it still tends to be a lower interest rate than you would get from a trust company or a private mortgage lender.

If you have any questions, concerns or would like more information on Banks VS Credit Unions please reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation and give you the best advice.

At GLM Mortgage Group, we are with our clients for the entire journey. From the beginning, we can identify client needs, any possible roadblocks, and give a variety of tailored solutions.

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Mortgaging a Property via Assignment

Mortgaging a property via assignment is a contract provision included in some real estate transactions that allow the buyer to resell or transfer a property to another buyer before the deal’s closing date. As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Mortgaging a Property Via Assignment.

This product was originally intended to give buyers a legal way of backing out of a purchase if for some reason their circumstances changed after they had put an offer on a property, instead of having to surrender their deposit. The clause was also meant to protect sellers, ensuring a sale would still go forward if another buyer could be found.

To qualify for a product like an Assigned Mortgage, there are some things you will want to first consider:

• Not all lenders offer to finance for Assignment Purchases
• Assignment Purchase products will contain the same features and conditions that you would expect of a traditional standard mortgage qualification
  • This means income and credit score requirements remain the same
• There will likely be additional documentation that will be required
  • Pertaining to the Purchase Contract and Contract of Assignment
• Some lenders will only finance on the original purchase price

The assignment clause allows real estate agents to sell a contract for a single property multiple times at increasingly higher prices as they make a commission on each transfer. Buyers in the middle also benefit by pocketing the difference between what they paid and the resale value. They also don’t pay any land-transfer taxes because the entire transaction happens before the deal officially closes, so the property is never technically in their possession.

The original seller receives less than what the property ends up being worth and the last buyer may be paying an inflated price, with the difference in value going to the real estate agent and the buyers in the middle.

The option of an Assigned Mortgage can be appealing to borrowers for a few different reasons:

1. Depending on how far along the process is, you could possibly be involved in choosing finishes of the property
2. Depending on your local market, you could score a good deal on an assignable property

The risk to individuals and developers, regardless of incorporation or not, is that the CRA is aggressive on assignments and will often investigate GST compliance long after the transaction has occurred. This leaves the taxpayer at high risk with a large tax liability if the sale of an assignment fee was not properly documented for GST purposes. As always, remember to consult a qualified tax professional with regards to your potential exposure and ensure that GST is reported correctly along the sequence of transactions.

Let’s look at this case study on Mortgaging a Property via Assignment together…

A real estate agent’s client reaches a deal to sell a property to an initial buyer for $1 million. The agent then takes that contract and resells it to a second buyer for $1.5 million. The agent in turn goes to a third and final buyer and sells the contract for $1.8 million.

For each transaction, the agent receives a commission. The initial seller receives $1 million minus the agent’s commission. The first buyer who bought the contract for the property for $1 million and sold it for $1.5 million pockets $500,000. The second buyer who bought the contract for $1.5 million and sold it for $1.8 million gets $300,000. The third buyer pays the land-transfer tax on the $1.8 million purchase price.

For any issues with Mortgaging a Property via Assignment please reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation and give you the best advice.

At GLM Mortgage Group, we are with our clients for the entire journey. From the beginning, we can identify client needs, any possible roadblocks, and give a variety of tailored solutions.

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