Mortgagenomics Canada

Is there such a thing as tax deductible mortgages?If you are a resident of the United States, the answer to this question is - yes.  For decades Americans have been able to apply the interest portion of their mortgage as a tax deduction against their personal income.  Regardless of whether it was an investment property or a principal residence - the interest was an eligible tax deduction.How about Canada, can we deduct the interest portion of our mortgage payments?Absolutely, but only if the mortgaged property is generating an income.  Here are some examples:Among other home expenses such as utilities and internet services, if you run a small business from your home a portion of your mortgage interest is eligible for a tax deduction against your personal incomeIf your principle residence includes a self-contained rental suite, a portion of your mortgage interest is eligible for a tax deductionIf you own a separate property that exclusively generates an income from short or long term rent/leases

A couple of weeks ago I talked about intergenerational wealth transfer and how reverse mortgages have propelled into the market place as a vehicle to access valuable equity with absolutely no monthly payment obligation.  The homeowner (who must be at least 55 years of age) can apply to access up to 55% of their home equity and use the proceeds for anything they desire.   Another intergenerational transfer scenario came across my desk this past week, but this time it involved selling off a family home to another family member with the use of a mortgage.  So nothing unusual here as far as the transaction is concerned - the purchase price was determined based on the fair market value and the qualifying mortgage was the means to close out the deal. But the unique part of the transaction was that the down payment was gifted from the selling family member to the purchasing family member in the form of equity.  So in other words, the purchasing family member essentially qualified f

Today I'm gonna talk about one of my favourite qualification guidelines - the High Net Worth mortgage.  This is truly one of those money-talks type of products...money talks as in, the more liquid assets you hold, the more mortgage you can qualify for. This mortgage really comes in handy for those applicants that are short on qualifying income, but instead are flush with liquid assets (i.e. non-registered investments, RRSPs, and cash savings).  Here are some common applicant profiles that are well suited for this program:business owners that declare low incomes but have substantial liquid assets (they do qualify, but not for the amount they desire)average income earners who ALSO cannot qualify for the amount they desire due to insufficient qualification income, but have substantial liquid assetsHere are the main qualification criteria:minimum down payment of 20%-35% (varies with lender)in addition to the down payment, the applicant must possess at least $250,000 in liquid assets:Eligible Assets

Wouldn't it be great if there was a mortgage that didn't require an income to qualify for it? And better yet, absolutely no obligation to make a single payment on the principal debt throughout the life of the mortgage?  Well there is! It's called a Reverse Mortgage.  Whether you're a fan of them or not, these mortgages are becoming increasingly popular every year and its likely to continue on the same trajectory as the baby boomer generation (1946-1965) continues to gracefully age.What is a Reverse Mortgage?A reverse mortgage is specifically designed for those that are 55 and above and the main feature of product is that the main qualification criteria is your age (rather than your income). And the other main feature is that there is absolutely no obligation to make a payment on the mortgage.Here are the key qualification criteria for Reverse Mortgages:must be at least 55 years of agemust remain in Canada for at least 6 months plus a day, each yearthe property that

When it comes to income verification for a mortgage a recent paystub and an employment letter will typically do the trick, even if you're a new hire and just have one full pay cycle under your belt.  However, things could get a little dicey if you are currently in a period of probation with your new employer.  The most common workaround for an applicant who is in the midst of a probationary period is to coordinate the completion date of your purchase with the expiry date of the probationary period.  A lender will proceed with the approval and condition for an updated employment letter and/or recent paystub to verify that the probationary period is no longer in effect. Lender guidelines generally dictate that probationary periods must pass (in their entirety) prior to the completion of the mortgage.  But in many instances a lender will overlook a probationary period provided that a good case can be made.  Here are some real life exceptions I've been granted on several files o

On Thursday April 8 (yesterday), The Office of the Superintendent of Financial Institutions, OSFI (the Canadian Bank watchdog) announced that they are proposing changes to the current stress test rule. So basically, consider this the last-call bell to qualify under the current stress test until June 1, 2021. It’s not 100% official as of yet, but the chances of OSFI not proceeding with their new recommendation is slim to none.Before I get into the proposed recommendation, here’s a quick recap on the current stress test:Rather than qualifying based upon the actual mortgage contract rate, all mortgage applicants are required to qualify at a rate that is 2% higher, or 4.79% - whichever is higher (4.79% is the predetermined 5 year benchmark as imposed by the Bank of Canada...since 2018, this benchmark rate has varied between what it is today, 4.79%, to as high as 5.44%). So throughout COVID (essentially all of 2020), applicants have been qualifying at 4.79% which has at some time

If you're self employed and qualifying for a mortgage right now (April), you are either gleaming with optimism or white knuckling your way to the finish line. And here's why...When qualifying as a self employed applicant, your qualifying income is determined from your most recent 2 year average (of your Notice of Assessments). Notice of Assessments are the end confirmation of your tax process...it's like a receipt, or final bill of sale. Lenders request it because it is the most firm verification document for self employed applicants. It also verifies whether the qualifying mortgage applicant has taxes owing...and if so, the lender will require that the balance outstanding is paid in full. On the other hand with non-self employed applicants (who receive income that is already deducted at source from their employers), Notice of Assessments are less often required when qualifying for a mortgage unless the applicant is relying on some type of additional variable component to their income

Today I want to talk about how one could incorporate gifted equity when purchasing a home (with the proceeds of a mortgage) from a direct family member. So, in other words a transaction between two direct family members (mainly child and parent) can occur by the selling family member simultaneously gifting a portion of their equity to the buying family member while formally selling/transferring the property to them. The gifted equity portion is used to fulfill the minimum down payment requirement of the buyers mortgage. Here's how it works:STEP 1: The Buyer must qualify for the mortgage as per standard qualification criteria with the exception of the unique source of the down payment being gifted equity (rather than from own sources).STEP 2: Determine the amount of the Gifted Equity. Depending on the amount of gifted equity, the mortgage will be either high ratio, or conventional. If the down payment (gifted equity) is less than 20%, the mortgage is classified as high ratio and w

 When it comes to mortgages for newcomers to Canada, the qualification criteria remains similar to what Canadians can expect but with the following exceptions:Minimum down payment thresholds vary anywhere from 5% to 35% depending on ones residence status:Permanent Resident with standard income confirmation: 5-10% minimum down paymentPermanent Resident with no income, but high net worth: 35% minimum down paymentTemporary resident (work permit, students): 10% minimum down paymentNon-Resident (Canadian Citizens, Permanent Residents and Foreign Residents that do not reside in Canada): 35% minimum down paymentNewcomers must also have arrived in Canada within the following timeframes to be eligible for newcomer mortgage qualification, otherwise, they will be subject to standard Canadian qualification guidelines:Permanent Resident / Landed Immigrant: eligible within a 5 year period since arrival in CanadaTemporary Resident: eligible within a 2 year period since arrival in Canada and at least 3 month job tenureA

In Vancouver, purchasing a property these days has become somewhat comparable to a Black Friday event.  A property gets listed, an offer date is set, several buyers line up to view the property (actually some don’t even bother to view as they go straight to the offer stage), and finally offers are placed.  This is where things get diceyIn normal times, upon submitting an offer a buyer negotiates conditions and a period of time to satisfy the conditions (i.e. mortgage financing, review of property disclosure statement, home inspection, strata/condo documents, appraisal, etc.).  Not these days though.  Buyers are instead submitting offers with very limited conditions, and in a growing number of instances, none at all!  Hence the term, “subject free offer”.Does a pre-approval mean that you can go subject free?My short answer to this question is NO.  The term pre-approval is a loosely used term in the mortgage industry and the validity of one varies significantly from broker to

The most common types of income when qualifying for a mortgage are variations of salaried, hourly, and self employed income. But what about other sources of income? There are plenty more to be aware of!Here is a list of some other less talked about forms of qualifying income:Part-Time Income: as long as the income is guaranteed, you could use 100% of the income as stated in the employment letter and/or recent paystub. A minimum tenure is not required as long as the probationary period has been fulfilled (if applicable)Fluctuating/Irregular Income (non guaranteed part-time, seasonal income): qualifying income is determined by calculating a 2 year average from any one or combination of the following; Notice of Assessments, Year End Paystub, or T4. In addition, one or a combination of the following will also be required; Employment Letter, Direct Deposit history, or recent paystub. If there is a variation from year to year which is greater than 20%, then the lower of the last two years i

Today I wanna talk about mortgage penalties and how and when they come into play within a mortgage.  The when part of the question is quite simple, so let's begin there.  Every mortgage has a maturity date (with the exception of home equity lines of credit), and if you sell your property or refinance your mortgage ahead of the maturity date, you are subject to a penalty from your mortgage provider (except for HELOCs and open variable/fixed mortgages).  And whether you like it or not, the concept of paying a penalty should not be surprising.  After all, a mortgage is a contract between you and the bank and if you’ve ever owned a cell phone you understand that there are consequences when you break your contract.  Same thing with mortgages, but at a much larger scale.  But, here’s the thing with the mortgage penalty...the convenient and commonly understood definition of it is that it equates to simply 3 months worth of interest payments, but there is clearly more to it than that.&nb

I think it's safe to say that every single detached home in Vancouver is priced over $1M. In fact as of Feb 2021, the average priced single family home in Greater Vancouver shot up to $1.83M (the third highest monthly figure, ever!). And here is the major disconnect of the entire real estate equation (for Metro Vancouver)...the median total income of households sits at only $72,662 - you don’t have to be a mortgage broker to know that this income will not qualify for a $1.83M purchase, in fact, a $72,000 income will net you a mortgage of just under $400,000.So where do we go from here?  Knowing that the minimum down payment required to purchase a property over $1M is 20%, the entry barrier to owning a single family home in Vancouver is sky high. For many, unachievable...impossible. More people actually qualify for a $1.83M purchase, than those that actually have the required down payment to fulfill the qualification (this is the bigger problem). For example, the annual income req

The term “First Time Home Buyer” is thrown around often these days and is tagged in countless incentive based programs and policies. In the future I will dedicate an entire newsletter to the various First Time Home Buyer privileges and programs, but today I will talk about one in particular, the RRSP Homebuyer Plan.What is the RRSP Home Buyer Plan?The RRSP Home Buyer Plan (HBP) is a program that allows you to withdraw funds from your Registered Retirement Savings Plans (RRSPs) to buy or build a home for yourself or for a related person with a disability. Here are the 3 major features of the RRSP Home Buyer Plan:Access up to $35,000 of RRSP funds for the purchase of a homeTake as long as 15 years to pay it backIf you don’t repay the loan within the 15 year period, the full amount of the loan will be declared as income and you will be subject to tax at your marginal rateEligibility criteria for the RRSP Home Buyer Plan:You must be considered a first-time home bu

Key Characteristics of fixed rate mortgages…Current Rate Range (as of Feb 5, 2021): 1.49% to 1.79%Distinguishing Characteristics:mortgage break penalties are the greater of 3 months interest or interest rate differential (IRD).  And with that being said, your mortgage penalty figure can deviate back and forth throughout the life of your term depending on the prevailing market conditions.Fixed mortgages can be ported/transferred to another property so as to avoid a break penalty, or to preserve your interest rate (CAUTION: porting your mortgage does not always add up.  In fact, in most cases mortgage holders opt out of it due to all the caveats associated with it.  But nonetheless, it is certainly an option.  Click Here to be redirected to my previous blog on Porting a Mortgage)fixed rate mortgages are available for various terms (1, 2, 3, 4, 5, 7, 10 year terms)Can be amortized up to 30 yearsMaximum Loan To Value allowance: 95%interest rate changes can occur at any time without any notice

Imagine running a marathon and you are 50 strides away from completing the race.  But suddenly, a race official appears out of nowhere and moves the finish line another 500 meters ahead.  This is what closing costs verification feels like...the applicant has just recently (painstakingly) satisfied the down payment verification and is now presented with another task of proving that they have enough cash to pay for the legal fees, property transfer taxes, moving truck and other peripheral costs associated with the purchase of a home.  At the end of the day, it's not that big of a deal, but it is definitely worth addressing and making the buyer aware very early on in the buying process so as to avoid any unnecessary drama and tension. 3 key points about Closing Cost Verification:lenders typically calculate the Closing Cost as 1.5% of the purchase price and in provinces like BC and Ontario where Property Transfer Taxes are significant, the request for it during the mortgage process simply reiterate

The dream to build your own home is alive and well, especially in Vancouver!  Take a drive down any street in one of (metro) Vancouver's neighbourhoods and you'll see several projects on the go.  This week I want to write about the mortgages that finance these incredible projects and what it takes to qualify for them.  The mortgages are commonly referred to as Construction Draw Mortgages or Self Build Mortgages.  If you or anyone you know are considering taking this route, read on and learn about the main qualification criteria.The 3 Most Important Factors:Building your own property is capital intensive. Be aware that you will need a substantial amount of front money to begin your project (even though you qualify for a construction draw mortgage).  Front money is non-mortgage money and it will be required for pre-construction soft costs and the beginning stages of your build.  Front money can be from any source; own sources, sale of previous home, equity proceeds from a home refi

Over the last decade the process of qualifying for a mortgage has increasingly become more cumbersome and frustrating. In fact, some claim it is easier to attain citizenship to another country than it is to secure basic financing for a 1 bedroom condo in Calgary. So why is this? Why all the questions, the excessive document requests and the never ending due diligence? The answer is multi-dimensional and a topic for another newsletter all together (in the meantime refer to Twitter for endless threads on real estate and finance theories). But regardless of the reasoning behind today's challenging mortgage qualification landscape, I've noticed a commonality for all successful approvals that have run across my desk over the years, and I've narrowed it down to three key principles that lead to an optimal mortgage experience. Follow these principles and I promise you that your next mortgage qualification experience will be a walk in the park. And not only will it be stress free, b

What is a real estate assignment contract?Before I get in to the process of how to qualify for a mortgage when assigning a real estate contract, let's first unravel what a real estate assignment is.A real estate assignment is a transaction similar to that of a standard real estate transaction, except rather than being referred to as a buyer and a seller, in an assignment they are referred to as an Assignor and Assignee, the assignor being the seller and the Assignee, the buyer.The main distinction of an assignment contract is the subject item of the assignment. Rather than being the property itself, the transactional item in an assignment contract is the RIGHT to PURCHASE - the property. Hence, the original terms and conditions of the original purchase contract remain intact. The only changes are in ownership and negotiable price.Why would someone want to purchase a property via an assignment?its a way to get into a new property without waiting for a long period of time (typically, assignments

Since the launch of the program in Sept 2019, only 13% of the programs allocated reserve actually made it to the hands of first time home buyers. Will the upcoming enhancement spur more interested applicants, or is this program simply a dud?Three words that best describe Trudeau's First Time Home Buyer Incentive (FTHBI) program that was launched back in Sept 2019 - OVERRATED, UNDERUSED, and CONFUSING.But that could change as early as this coming spring as the programs maximum thresholds have been increased to capture a more broad range of buyers in Canada’s two highest priced markets; Vancouver and Toronto. In 2019, the FTHBI program was available for properties up to a maximum purchase price of $507,000. However, in 2021, the program will be enhanced to accommodate for a maximum purchase price of ~$722,000.First, let’s talk about what it's NOT:It’s not free money (has to be paid back in 25 years or when you sell, whichever comes first), It doesn’t help you&n