An appraisal is an important part of the mortgage approval process.

• – It determines how much equity can be refinanced out of a property (up to 80%)
• – It helps the lender determine if the purchase price of the home matches the market value (did the consumer over pay?)
• – It provides the lender with market demographics for the home & surrounding neighborhoods
• – It provides pictures of the interior to help show the condition of the home 

Comparable sales – deriving the value:

For all properties other than rural/cottages/recreational, dates of comparable sales: 

• – 6 months – If appraisal indicates prices are stable or increasing
• – 3 months – If appraisal indicates prices are declining 
• – One comparable within 3 months and others within 6 months

Dates of comparable sales for rural/cottages/recreational 

• – 12 months

How many comparable sales are needed?

• – 3 comparable sales needed if the total net adjustments for all comparable sales are <25%
• – 4 comparable sales needed if the total net adjustments for all comparable sales are >25%

What happens if they are not available?

• – Appraisal must explain why
• – Older comparable(s) may be used

What happens if they are readily available?

• – A full appraisal may not be needed
• – Auto-Valuation-Method will occur with no physical inspection needed

Appraisals in 2021

Many emerging areas are seeing new price benchmarks on every sale that occurs.

Due to multiple / bully offers, prices are exceeding list price & market value.

Lenders will provide financing on the LOWER of the purchase price or the appraised value. The consumer would then have to make up the difference in personal savings.

This possess additional risks for individuals who cannot make up the shortfall. 

Example: 

– Purchase Price = 1,100,000 

– Appraised Value = 1,050,000

– Mortgage Financing = 80% x 1,050,000 = 840,000

*Clients would need to increase down payment from 220,000 (20%) up to 260,000 (23.64%)

Protecting Consumers

• – Financial conditions that allow time for the appraiser to complete the report during the financing condition window. 
• – Being confident in the comparable sales for the area (as the appraisers will likely use the same ones).
• – Real estate professional to provide comparable sales to the mortgage broker & client so they can attach to the appraisal order form.

Home appraisal cost ranges from $100 to $150 for an Auto Valuation Method and $300+ for a full inspection. When a report is ordered for the lender, the report belongs to such lender, and the consumer does not receive a copy.

To order your own report, or for recommendations of real estate appraisers, residential appraisers, real estate appraiser Toronto, property appraiser, mortgage appraisal, please reach out to the Connolly Capital Team for assistance.

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The minimum qualifying rate for both Insured and Conventional files will become: the mortgage contract rate (the rate offered on your mortgage loan) plus 2% or 5.25% – whichever is greater. 

Insured mortgages are those with a down payment under 20%/backed by a mortgage insurer – CMHC/Sagen/Canada Guaranty. Uninsured mortgages are residential mortgages with a down payment of 20% or more.

Raising the qualifying rate for potential buyers will result in qualifying for a lower mortgage amount. In the examples below, there is approximately a 4% drop in mortgage qualification.

The last round of mortgage rule changes (in 2018) introduced the “stress-test” for uninsured mortgages and was preceded by a flurry of last-minute buying. It’s anticipated this latest announcement could again spur this type of activity.

The stress-test was implemented as a means of ensuring borrowers do not overleverage themselves. It is the metric used to qualify would-be home buyers for a mortgage loan; whereby potential borrowers must demonstrate they have the ability to cover their mortgage payments in the event rates rise much higher than when they apply for the mortgage.

Current Stress Test (before June 1^st, 2021)

4.79% OR +2.00% over the given client rate

New Stress Test (After June 1^st, 2021)

5.25% OR +2.00% over the given client rate

If you are concerned with the change to your purchasing power please contact us to run the numbers for you. Chances are the impact will be less than you imagine. 

We are committed to providing you with sound advice and continue to have access to numerous lending options, including ones who do not “stress test”. 

Example #1: CONVENTIONAL FILE

Clients:

• – Household income of $250,000/year
• – Auto loan of $500/month
• – Student loan of $100/month

Subject Purchase:

• – Detached home in Mississauga
• – Purchase price = $1,875,000
• – $7,500/year in property taxes

4.79% qualification

• – Max mortgage is $1,500,000
• – Down payment needed = 20% ($375,000)
• – Monthly payment = $ 5,173.45
• – Stress test payment = $ 7,818.28

5.25% qualification

• – Max mortgage is $1,420,000
• – Down payment needed = 24.26% ($455,000)
• – Monthly payment = $ 4,897.53
• – Stress test payment = $ 7,791.66

***Decrease of $80,000 in lending capacity, or, 5.33%

Example # 2: INSURED FILE

Clients:

• – Household income of $140,000/year
• – Auto loan of $500/month
• – Credit card balance of $8,000

Subject Purchase:

• – 1+1 Bedroom condo in Toronto
• – Purchase price = $700,000
• – $3,000/year in property taxes
• – $505/month condo fee

4.79% qualification

• – Max mortgage is $655,000 + Insurance Premium of $26,200 
• – Down payment needed is the minimum = 6.43% ($45,000)
• – Monthly payment = $ 2,914.22
• – Stress test payment = $ 3,880.85

5.25% qualification

• – Max mortgage is $630,000 + Insurance Premium of $19,350
• – Down payment needed = 10.00% ($70,000)
• – Monthly payment = $ 2,778.73
• – Stress test payment = $ 3,870.67

***Client must come up with an additional 3.57% in down payment ($25,000)

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There is no real correct answer to this question. It is important to choose the mortgage solution that suits your needs as a home buyer. Many factors should be considered including:

• – Future plans for the home including renovations or buying / selling
• – Income consistency & stability
• – Monthly debt obligations

When evaluating the difference between fixed and variable, the “spread” between the two rates should be considered. For example, a 5 year fixed rate with an amortization of 30 years currently comes with a rate of 2.34%. The equivalent term on a variable rate is 1.50%, which represents a 84 Basis Point spread between the two options. When the Bank of Canada begins to raise the Prime Lending rate (which will increase clients with Adjustable/Variable rate mortgages), the increases are generally in 25 Basis Point increments. This means you are “protected” from at least 3 Prime Lending rate increases before the rates meet.  

Some of the main differences between fixed and variable rates are listed below:

Fixed-rate mortgages:

• – Interest rate is guaranteed for the duration of the selected term
• – Holding rates for 120 days are eligible while shopping for a home. 
• – Predictable payments
• – Penalties can be high, up to 4% of the mortgage balance in some cases. The penalty calculation is based on “Interest Rate Differential”

Variable-rate mortgages (VRMs):

• – VRMs can change with market conditions that are set out by the Bank of Canada and the Prime Lending Rate. 
• – Holding a rate for 120 days may not be eligible while shopping for a home. 
• – Some lenders have “adjustable-rate mortgages”. This means the rate & payment will auto adjust with changes in the prime rate and maintains the original amortization schedule.
• – A “variable-rate mortgage” means the total payment amount remains the same even with changes to the Prime Rate. Since the payment remains the same, the percentage of principal vs interest will change (which in turn affects the amortization). 
• – Some lenders will not allow you to “port” a VRM without converting it to a fixed rate term
• – Penalties to break a VRM are consistent (3 months of equivalent interest). 

Speak with an agent at Connolly Capital to help guide you through this important decis

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Watch my Video here!: https://www.youtube.com/embed/Jz5-1yVm6C8

Some conditions are listed below:
1. One applicant must be a FTHB in order to qualify.
2. Maximum qualifying application income is no more than $120,000.00
3. Maximum purchase price is no more than 4 times the application gross income + the clients down payment.
Calculator here: https://www.placetocallhome.ca/fthbi/eligibility-savings-calculator
4. The incentive must be paid back upon sale or after 25 years, whichever happens first.
5. The incentive is 5% or 10% of a new construction home or 5% of a resale home. 

Example 1: Resale Home Purchase (5% incentive)
John earns $50,000.00/year and his wife Susan, earns $60,000.00/year for a total gross household income of $110,000.00. John and Susan have saved up $50,000.00 to use towards their down payment.

Maximum purchase price = ($110,000.00 x 4) + $50,000.00 = $490,000.00
Total incentive registered in second position = $24,500.00
This means the clients down payment has now increased to $50,000.00 + $24,500.00 = $74,500.00
The additional $24,500.00 in funds comes with monthly payment savings on the mortgage of $121.46

Example 2: New Construction Purchase (10% incentive)
John earns $50,000.00/year and his wife Susan, earns $60,000.00/year for a total gross household income of $110,000.00. John and Susan have saved up $40,000.00 to use towards their down payment.

Maximum purchase price = ($110,000.00 x 4) + $40,000.00 = $480,000.00
Total incentive registered in second position = $48,000.00
This means the clients down payment has now increased to $50,000.00 + $24,500.00 = $88,000.00
The additional $24,500.00 in funds comes with monthly payment savings on the mortgage of $250.31
*The incentive does not activate until the funding date of the mortgage. This means, if the builder requires 20% in deposits, this program will not assist as the money is not provided upfront. Clients will be responsible for fulfilling builder deposit structure. 

Common Questions:

1. How is the lean registered?
-It is registered in second position and is non-interest bearing.
2. How much will I have to pay back?
-Payments are 5% or 10% of the home’s value at the time of sale. This means, repayment value includes both depreciation and appreciation.
3. Can I refinance?
-Yes, the charge remains in second position.
4. If one borrower is a FTHB and the other is not, can I qualify?
-Yes
5. If the gross application income is >$120,000.00, can I still qualify for 4x a smaller amount?
-No, if the income is >$120,000.000, the clients are eligible for the program. 

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This program is designed to provide additional mortgage solutions to customers with moderate incomes who have a significant amount of verifiable liquid assets and strong credit scores.

Asset Requirements:
– Minimum liquid assets of $250,000
– Must have $1 in liquid asset for every $1 in mortgage needed above standard qualified amount. I.e., if a customer qualifies for a $400,000 mortgage using standard debt servicing ratios but requires a mortgage of $950,000. They must have verified liquid assets of $550,000 in addition to down payment.
– All purchases including rentals and refinances are eligible 

Eligible Assets
– Stocks of a publicly traded Canadian company and Canada/Provincial Savings Bonds
– GIC, Chequing & Saving Accounts
– Mutual Funds
– Equity in existing properties being sold, a firm purchase and sale agreement is required
– TFSA, ESOP
– Retirement Accounts – discounted by 30% to account for withholding taxes.

Real deal example – case study

– Client just sold her free and clear property for $1,610,000 and purchased a new home for $1,340,000

– Client works part time and earns $22,000/year and also receives spousal support in the amount of $40,000/year. The separation agreement had not been updated as it was being revised, meaning our lenders would only accept her part time income for debt servicing on the application.

– Without use of the net worth program, the client was only able to achieve a new mortgage of approx. $100,000.

– With the net worth program, see below:

Sale proceeds: (1,610,000)

Total available for down payment = $1,517,035

Purchase: (1,340,000)

Total remaining proceeds of sale = $1,022,660

Approval:

– We took what she traditionally qualified for ($100,000) and added this to her net worth. Since she had $1,022,660 remaining after the proceeds of her sale, her max mortgage is $100,000 + $1,022,660 = $1,122,660 (capped at 65% of the homes value).

– 65% x $1,340,000 = $871,000

The client locked in $200,000 in a 3 year fixed mortgage at 2.89% on a 25 year amortization.
The remaining equity of $671,000 is on a line of credit at Prime + 0.50% = 4.45%, unadvanced.
This client now has access to her equity for the remainder of her life without the need to re-qualify.

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Bank Branch Experience:

A client dropped off documents during the last week of December 2018. The credit report and application was not submitted until January 7th. The client’s decline was issued January 21st due to new policy changes regarding lines of credit.

Broker Experience:

The client’s first interaction with us was January 22nd at 1pm. The client then filled out an online application on January 22nd at 9:30pm. Client income documents were picked up January 23rd at 8:00am from her home. Her approval was issued January 23rd at 11:30am with the appraisal complete on January 24th at 2:00pm. The lawyer instructed and the file was broker complete January 24th at 5:00pm. 

Thank you to Scotia Bank Mortgage Authority and Mississauga Appraisals for getting the job done in just 48 hours!

The post Completing a File with 8 Days to Closing appeared first on Connolly capital.

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Starting early puts you in the best position to see if there is anything you can modify within your lifestyle to ensure that you get the best renewal possible. Starting to look within the last year of your mortgage sets you up to have the most amount of options available.

2. Do not sign the first renewal offered.

Lenders can change the terms of your mortgage, and the renewal you are signing can cost you a percentage your equity if you are with the wrong lender.

3. The best rate is not always the best renewal.

The best rate does not always have the terms that fit in with your lifestyle. Many people think that the only reason they would ever break a mortgage is if they are moving or selling their home. However, there are many outside factors, such as divorce, job change, and investment opportunities that could contribute to needing more flexible terms in a mortgage. 

4. Consider the lender’s history and bias.

Some lenders can have higher primes then anyone because they know the cost to leave outweighs staying the course. A lenders job is to lock you down into a mortgage so they can make as much profit off you as possible. Educate yourself to avoid this risk.

5. Use a mortgage professional.

Each time you shop for a lender on your own it takes points off your credit score. Using a mortgage professional that can shop for multiple lenders at one time with one application protects your credit score.

6. Do not online rate shop.

Today’s mortgage market is increasingly complex and there are significant differences in rates depending on the type of mortgage you need (insured vs. uninsured, switch vs. refinance, purchase or renewal). Mortgages are also dependent on your credit score, type of home you are purchasing, amortization period, your job and more. Searching online for the best rate will get you nowhere. You need an appropriate application and supporting documents to find the best rate for you.

Your mortgage is the largest debt and investment that you will ever have. Here at Connolly Capital, our job is to advise you in your best interest based on our expertise. We are here to save you money! 

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Being in my mid-twenties, I can certainly relate to the struggles of the first time homebuyer demographic. Growing up just outside of Toronto, moving into the downtown core was always my goal, but when the time came to make the move, I knew I couldn’t do it on my own. What is the eager millennial to do?

First time homebuyers are often in the position of having to come up with creative means of achieving financing. Asking for help is the new norm, however first time home buyers are simply not doing this in an effective way.

Getting a parental co-signor – a commonly proffered workaround — is nowhere near as easy as it sounds. Millennials’ parents may well have their own debt obligations, often with large unsecured debts and of course their own ongoing mortgage payments. A financial gift towards a down payment is a great answer to those with the means, but whatever the parents’ good intentions may be, more often than not their financial resources are  tied up in the equity of their homes. Refinancing could be an option, but the new rule changes make qualifying a less certain prospect.  The millennial eyeing homeownership could be excused for feeling that there’s no light at the end of the tunnel.

This is where we come in. Mortgage professionals’ remit is already more diverse than it once was; we now need to be mortgage coaches, (some days even mortgage therapists) for our clients. As part of this process of better addressing client needs we must become more adept at positioning co-signors, financial gifts, and tenancy in common. The last concept — tenancy in common; that is the purchasing of a home with a friend, partner or relative — will become the new norm in the major urban markets of Toronto and Vancouver – and I know whereof I speak.

            I did it, and more home purchases will soon follow my example. Apart from the obvious halving of the amount I had to come up with for a deposit, the benefits of going into such a major purchase with a partner diminished every fear I once had about attempting to enter the housing market. For example, the much-despised Toronto land-transfer tax and those pesky lawyer fees? Cut in half. In fact, all housing-related expenses including condo fees, mortgage payments, property taxes and insurance now come with a 50% reduction in price. The benefits of halving what smaller fees have to be paid for line items such as internet, cable, Netflix, hydro begin to compound; joint expenses as small as dish soap are also cut in half.

Being a busy professional with a demanding job, I am lucky to have as much as two hours of free time – or as my roommate eloquently terms it, “sitting time” – on any given night. It is comforting to know of the home sitting vacant for the majority of the day, that whatever price tag could be attributed to that notional vacancy is reduced by 50%.

            However a smooth tenancy in common demands the co-owners take precautions early on: buyers should seek out legal advice in order to both make out their wills and create ‘a shotgun clause’ in the paperwork to protect the asset and the relationship that exists between the individuals. A contract between the two parties that stipulates a potential time frame to hold the asset is also recommended. The ‘shotgun clause’ sets parameters in the event one party should need or want to sell off their share of the property.

Given that the price of the average condo is set to reach $600,000 in Toronto and $700,000 in Vancouver, and thus move beyond the reach of anyone earning less than $100,000, a flexibility of approach – for example the pooling of down payment and income resources as in tenancy in common arrangements — is now required.

The shift in ideology for tenancy in common to become more commonplace is underway, and the sooner young people regarding the price of real estate with dismay realize this, the sooner they will find themselves able to buy property and – perhaps even better – the lower their total expenditures will become.  Young people can partner up, or get comfortable at their parents’ house.

The post Why Tenancy In Common Will Be The New Norm in Canada’s Major Markets appeared first on Connolly capital.

1. A second mortgage can be a great way to access available equity without having to break your first mortgage.

2. Ability in some cases to refinance up to 85 per cent loan to value.

3. Second mortgage interest rates can be significantly less than credit cards. You can use the second mortgage to pay off your high-interest credit card debt, which will clean up any bruised credit and get you in a better position to qualify for the best rates later.

4. Ability to use this lower-cost financing as you see fit – pay off debt, renovations, cash flow for your business, an investment, tuition, wedding, trip, or other major expenditure.

5. That second mortgage can help you complete your purchase if your down payment is a little short of what you need.

6. A second mortgage is often easier to qualify for than a secured line of credit.

The value you’ve built up in your home is a wealth-building tool, and usually the best place to borrow funds when you need them. That’s why – for a growing number of financially savvy Canadians – a second mortgage can be a smart move!

 – Mortgage Intelligence 

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