Do your clients ever complain about having to go through CMHC/Genworth/Canada Guaranty when they don’t have more than 20% down? Did you know that insured mortgages (when a client puts down less than 20% and has to pay mortgage default insurance) can actually get interest rates lower than those clients that put more than 20% down? With an insured mortgage the lender knows that they can get their money back if the client defaults, and therefore some lenders will actually reward the clients by offering them a lower interest rate. When clients put down more than 20%, lenders will often pay the mortgage default insurance premiums themselves, and then increase the interest rate to recoup that cost.
So you can always tell your client going through CMHC isn’t all that bad, and that they could actually get a lower rate!
Purchase Plus Improvements
I’m sure you and your clients often come across homes that are almost perfect, but need a little work. The Purchase Plus Improvements program is great if the clients have room in their debt service ratios (how we calculate the amount they are approved for) because they can add up to $40,000 to their mortgage for renovations. Prior to closing the clients have to have quotes from contractors or quotes on materials if they are going to do the work themselves. If the lender and insurer approves it, the funds get added to the mortgage, and sit in trust with the lawyer until the work is completed. Once the renos are completed (most insurers/lenders want them done within 3 months), the insurer often sends in somebody to confirm the work was done before instructing the lawyer to release the funds. So…. This means that your client needs to either pay for the materials or work up front with the contractor, or they can work with a contractor that is familiar with the program and will accept payment upon completion. I have a list of contractors that are familiar with the program and take payment after the funds have been released.
Check out the Genworth page for a quick video on the program, and let me know if you have any questions!
With the uncertainty that seems to hang over almost every aspect of our lives right now, it is understandable that many Canadians are not sure if now is a good time to buy or sell. When it comes to the current state of the real estate market, I defer to the real estate professionals. However, here is some information on what you need to know about qualifying for a mortgage during the pandemic.
Permanent full-time applicants & self-employed applicants
If you are still working and have permanent full-time employment, then qualifying for a mortgage is business as usual. For self-employed applicants, typically lenders and insurers ask for 2 full tax years to establish an average annual income. In recent weeks, depending on the industry, some self-employed applicants have also had to produce recent invoices and proof of bank deposits to show that they are still operating their business.
Applicants receiving government assistance
At this point, CMHC and the other insurers are not using government assisted income as qualifying income for mortgages. If an applicant has been laid off and is receiving EI, we can't use that income, nor the income the applicant will be receiving when they are back at work. This can drastically affect the mortgage approval amount and can hinder an applicants ability to switch lenders to take advantage of a lower interest rate, as they need to have qualifying income in order to switch lenders. In some cases we may be able to use EI as qualifying income for seasonal employees that are typically laid off this time of year and have a return date set in stone,
Please reach out if you have any questions or need help navigating these challenging times.
During this pandemic, many clients and friends have been asking me what is going on with mortgage rates, and they always assume that interest rates are continuing to drop based on the markets. However, with all of the economic uncertainty, and the fact that over 1 million Canadians have filed for Employment Insurance, lenders and investors are worried about increased insolvency. With large increases to risk premiums, lenders are having to spend more to borrow the funds to mortgage clients which is why we have seen most low promotional rates expire. Right now fixed rates are comparable to the mortgage rates we had in February before this hit North America (between 2.69%-3.24% depending on the type of mortgage needed).
In regards to variable rates, the Bank of Canada dropped the overnight lending rate 3 times since the onset of the COVID-19 pandemic, and the majority of lenders have dropped their Prime rates in the days following those rate drops: