April 23, 2018

Pre-Qualified or Pre-Approval?

With the spring housing market heating up, you may want to make an offer on a house without a condition on financing.  I wanted to clarify how to receive a valid Pre-Approval.  I have had 2 referrals lately that told me that they had been pre-approved for their mortgage, when in fact it was as good as the paper it wasn’t written on!

Typically, when you go to your lending institution stating you are buying &/or selling a home, they will take your basic information, crunch some numbers and tell you what amount you qualify for.  Unfortunately, this is not an accurate pre-approval.  When I do a pre-approval for my clients, I actually pull a credit check and request income confirmation i.e. T4’s or tax returns.  This is especially important for Business For Self and hourly/contract individuals.

The other aspect to consider is that the house you are buying is an important part of the lending process.  Is it a ‘fixer-upper’ or is it a lovely home that anyone would want to live in?  Because of this fact, most lenders won’t even look at doing a pre-approval without a purchase agreement.

What you really require is a letter of confirmation stating that based on the information provided, you have been approved for a mortgage up to a particular amount to give you the assurance to write an offer without a “Subject to Financing” clause.

With all the variations and permutations within the lending guidelines, for the typical consumer, this is one area where discussion with an experienced broker is time well spent.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

Boost Your Results, Reduce Your Hours

In his book Extreme Productivity:  Boost Your Results, Reduce Your Hours author Robert Pozen reveals his secrets and strategies for productivity and high performance, focusing on results produced rather than simply hours worked.

Pozen lays out 6 steps to analyze whether your efforts are supporting your most critical business goals and objectives. We all rush from meeting to meeting or various activities without giving much thought to the rationale for our hectic schedules.

We spend too little time on activities that support our highest goals and have a serious mismatch between priorities and time allocations.  Think carefully about why you are engaging in any activity and what you expect to get out of it.  Establish your highest-ranking goals and determine whether your schedule is consistent with this ranking.  This process has 6 steps:

  1. Write everything down:  Include routine tasks that you have to do daily or weekly and longer-term projects.  Include short and long-term goals.  Add these aspirations to your list.
  2. Organize by time horizon:  Divide your list into 3 time categories:   A-  Career aims:  Long-term goals over at least 5 years  B-  Objectives:  Professional goals over the next 3 months to 2 years  C-  Targets:  Action steps that should guide your work on a weekly or daily basis
  3. Rank your objectives:  Think about what you want to do, what you’re good at and what the world needs from you.  These are distinctly different.  Determining “what you want to do” is critical to your ranking decisions.  “What am I good at”, which objectives play to your strengths.  “What the world needs from you”, determine what your clients, your organization needs most from you
  4. Rank your targets:  Your targets or action steps will typically fall into 1 of 2 categories, which will help you accomplish your objectives.  Decide which targets belong in which category and then try to rank them
  5. Estimate how you spend your time:  Once you have ranked your objectives and targets, determine how effectively your schedule matches your high-priority goals.  Take out your calendar and answer these 6 questions:
  • How many hours do you spend at work vs. other activities?
  • What are the 3 main work activities on which you spend the most time?
  • How many hours each week do you spend on meetings, reports and responding to emails or social media?
  • Will your weekly schedule be similar a year from now?
  • How will you measure success and failure over the next year?
  • Compare your allocations of time with your ranked list of objectives and targets.  What percentage of your time do you spend on activities that help you meet your highest objectives and lower-ranking items?

6. Address the mismatch:  You will likely find that you are spending no more than half your time on your highest priorities.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

Which Debt Should You Eliminate First!

It has always been a dilemma of whether you should use any excess cash to contribute to your RRSP or pay down your mortgage.  The current economic equation has recently tilted in favour of paying down debts vs. building up assets.  The current interest earned from GICs, term deposits and government bonds remains pathetically low.  At current deposit rates of less than 1%, it takes 72 years to double your retirement nest egg.

Here is how to think about the trade off between paying down your mortgage versus saving in your RRSP.  Every dollar you don’t contribute to your investment portfolio will earn the mortgage rate you are paying on that dollar.  If your mortgage is costing you 3%, then every dollar you don’t invest but instead use the money to pay-down debt will earn the said 3%.  If you are paying 10-23% like on many credit cards, the argument to eliminate the debt is even stronger.

Of course, if your investments are invested aggressively under the expectation that they will earn more than the mortgage rate you are paying, then you can justify not paying down your mortgage.  After all, borrowing at 3% makes sense if you expect to earn much more.

To quote the Review of Financial Studies “Households with high interest debt have a reduced benefit to equity participation and in many cases should not own any stocks…repayment of outstanding debt almost always yields a higher rate of return than many of the safe (investment) assets.”

As our mortgage interest is not tax deductible, it means that your Canadian debt is costing you even more compared to the U.S. consumer.  The i.e. 3% you are paying on your mortgage is 3% after taxes.  Many Canadians might be better off forgoing the tax deduction from the RRSP, which will eventually have to be paid back, instead paying down their high interest debt.

Look at both sides of your balance sheet at the same time.  Add up all your debts and compare the interest cost of all your liabilities against the interest you will be earning on your retirement investments.  If the former is greater than the latter, it is time to pay down some debt and forgo the investment plan contribution.  Oddly enough, not contributing to your RRSP might make you wealthier in the long run.

Colleen Saunders is a 25 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

Mortgages From Alternative Lenders

You have been turned down by your bank for mortgage financing, is there no other alternative?  What are you supposed to do?  Not consolidate your debts or complete your renovations or purchase that investment property or cottage?  Not to be concerned, there are other options.

Maybe you own your own business or you have had credit problems in the past, just because your bank cannot do the financing, there are what they call Alternative Lenders available and I deal with them all the time.  Some of these alternative lenders are actually Schedule B banks.

It will most likely cost you a higher interest rate and there may be some fees charged to arrange the financing but sometimes, the rates are as good as what your bank was offering.  More importantly, you can still get the funds you need.  There is a saying in the industry, ‘the higher the risk, the higher the rate’ and this is definitely true if you don’t show enough income or have had credit problems, you are classed as a higher risk.

While alternative lenders can provide a lifeline for Canadians who have run out of other financing options, it’s important to read the fine print.  i.e. on the extreme end, some alternative lenders have a full prepayment penalty when you want to payout your mortgage or if you are 15 days late on your payment, they may start a power of sale on your home.

If you need a mortgage with an alternative lender, they are typically taking on a client with a higher risk therefore it is important that your payments always be made on time but if you have an issue, make sure you keep them apprised of what is happening and they should work with you.  They don’t want mortgage arrears either!

 You can make sure you are getting the best alternative lender by working with a Mortgage Agent, like myself because I am working for you.  I make sure I get you the most reputable lender available!

Colleen Saunders is a 25 year veteran in the mortgage industry serving Oakville, Burlington, Mississauga and Toronto and offering all mortgage related services such as 1st & 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406

Are You Ready For Higher Interest Rates On Renewal?

Is your mortgage coming up for renewal?  Are you ready for increased payments based on today’s interest rates?  Your current interest rate is probably in the range of 2.5-2.7% for a 5 year fixed term.

We went through years of interest rate decreases and got used to lower interest rates and lower payments when renewing our mortgages but that trend appears to be over.  Competitively discounted fixed five-year mortgage rates today run from 3.19 per cent to 3.69 per cent.

Increased rates are only a piece of the puzzle.  New mortgage-industry rules are complicating the process of taking your mortgage elsewhere if you don’t like the rate offered by your current lender.  You will have to pass the ‘stress test’ if you want to switch your mortgage to another lender.  Unfortunately some lenders, notably the banks, may use this as an opportunity to become less competitive in the renewal rates for clients that are less creditworthy.

The reason for the range of interest rates offered on renewal will depend if your mortgage was previously an insured high ratio mortgage or whether you purchased with 20% down payment.  This insurance makes a mortgage more attractive to lenders due to how they can trade mortgages on the investment market.

You should expect your mortgage renewal 30-60 days before your maturity date.  If you feel your interest rate is unsatisfactory, I would be happy to help you find a more competitive rate.  We anticipate more people will be looking to see what other options are available!

Colleen Saunders is a 25 year veteran in the mortgage industry serving Oakville, Burlington, Mississauga and Toronto and offering all mortgage related services such as 1st & 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on  www.mortgagesbycolleen.ca  or call 416-459-2406