Will your Income Qualify you for a Mortgage?

There are several different ways a borrower can qualify for a mortgage when it comes to their income. One of the most common ways is known as income qualified. All of the following methods of employment income are under the income qualified umbrella:

1. Annual salary income employees                                                                        
2. Full time employees working guaranteed weekly hours
3. Part time employees working guaranteed weekly hours
4. Auxiliary/On-call employees with 2-yr history at same employer
5. Commission Sales who have 2-yr history in same job/industry
6. Employees earning gratuities who have claimed over 2-yr history
7. Contract employees with 2-yr history at job/industry

There are a couple more types of employment that may fall into this category, but for the most part, these are the types of borrowers whose mortgage application is going to be done using income qualifying.

When it comes to the first 3, a borrower’s income is paid by a business in which they generally do not have any interest/ownership in. This means, an human resources representative or a supervisor can write a letter of employment stating the weekly guaranteed hours, the guaranteed hourly pay rate, the start date, and the employee’s position. The lender will then use this letter, a most recent pay stub, as well as verbally confirm the letter with the employer to verify a borrower’s income. This is how a borrower who works guaranteed hours or salary has their income verified and qualified on a mortgage application.

For numbers 4 to 7, lenders and mortgage brokers will verify and qualify a borrowers income a little differently. Because an employer does not guarantee hours or income, we need to see that there has been at least a 2-year history making the same amount. This 2-year history will usually need to be with the same employer and will need to be documented on your personal income tax returns to the Canadian Revenue Agency. The income amount on your line 150 of your T1 General Tax Returns for the past 2 years are added together and then divided by 2. The amount you get is the income you are allowed to use on your mortgage application and this is then verified by a letter of employment stating you have in fact been an employee there for more than 2 years, your are currently working there, your position, as well as a pay stub showing year-to-date income that is comparable to your 2-year average given the month you are in.

The same process would be used for those who earn over time or bonuses, claim tips, or work part time with two jobs. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

Be prepared!

Recently I was finishing up a mortgage with a young couple who had just had a beautiful baby girl. I brought up the topic of mortgage and life insurance as well as getting a will written up. The response from the husband was that it was such a morbid topic and a real downer when they were excited about their new home.

The fact is that people, even young people die from car accidents, cancer, and even accidental drownings while on vacation. It’s a topic everyone avoids but it needs to be addressed, particularly when you are taking a major financial step like buying a home. What would happen to your spouse if you died suddenly with your mortgage not paid off?

I spoke to a major Canadian mortgage company about this topic.

I asked if the surviving spouse would be kicked out of the house. “ When someone dies who was on our mortgage we want to know right away . We ask for a copy of the death certificate so that we can take them off title. We will let the mortgage run it’s term if payments are being made on time. Many surviving spouses receive a life insurance policy and can pay off the mortgage or at least keep up the payments. We will renew the mortgage if payments are up to date. However, should the surviving spouse want to refinance the mortgage they would have to re-qualify for it.”

So what can you do to make life easier for your family should you die with a mortgage on your home? The easiest option is to have sufficient life insurance to ensure that they can keep up payments or to pay off the mortgage. Dominion Lending Centres mortgage professionals all offer MPP (Mortgage Protection Plan), a life insurance policy that pays off the mortgage in full in case of the death of the policy holder. The payments never go up because the mortgage balance is going down as the insured person gets older.

Another option is term insurance or whole life insurance. Speak to your favourite insurance broker about this.

Finally, if the surviving spouse is 55 or older, and they can’t afford to maintain the mortgage, a reverse mortgage may be the solution. No payments are made on the principal unless you decide you want to. When the widow(er) moves out the sale of the home pays off the mortgage and interest.

While it can be a “downer” to talk about death and disability, a responsible home purchaser needs to have the conversation with their Dominion Lending Centres mortgage professional at the time of their purchase, refinance or renewal. The sudden death of a family member causes enough grief for the survivors, why add to their misery. As the old commercial used to say “Why wait for spring, do it now”.

David Cooke

Looking to get a lower interest rate on your current mortgage? A transfer/switch may be an option.

Transfer/Switches are when you opt to transfer your mortgage to a new lender in order to take advantage of a lower rate. A transfer/switch does not include additional money to the existing mortgage balance owing, your mortgage amount will remain the same, however lenders will allow you to increase the mortgage up to $3,000 to cover legal costs, possible appraisal fees and if applicable, penalty fees – more on that below.

*Note: If you do require new money or funds (more than $3,000.00) this would then be considered a refinance.

There are two scenarios where you would utilize a Transfer Switch:

1. When your mortgage term is up, and the mortgage is renewing with your existing lender. If you choose to transfer/switch your mortgage at renewal you will not have to pay a penalty. You will still need to qualify and there may be legal and appraisal costs associated with the transfer/switch, just as you would with a new mortgage. However, many lenders offer you the option to include the legal and appraisal fees into you new mortgage and some lenders may cover these costs for you.
2. The second scenario you may choose to do a transfer/switch is when you are in the middle of the term of your mortgage. The only reason you would do this is to take advantage of a lower rate which means a lower monthly payment. This would have to make sense financially for you to do as you will have a penalty associated with breaking the current mortgage.

If your mortgage is up for renewal, or if you are considering a transfer/switch in light of recent rate changes, a mortgage broker can assist you in making the right decision. Similar to when you first financed your mortgage, having a broker assist you gives you:

A DEDICATED INDIVIDUAL SHOPPING FOR YOU:
Reputable brokers have your best interest in mind first!

Your mortgage professional will shop the market to find the best overall cost of borrowing for the client. Broker’s will look at all angles of the product to ensure that the client is getting one that will suit their unique and specific needs. Not once will the client be expected to shop their mortgage around or to speak to the lender.

ACCESS TO THE BEST RATES & PRODUCTS
A mortgage professional has access to:
• Tier 1 banks in Canada
• Credit Unions
• Monoline Lenders
• Alternative Lenders
• Private Lenders

This extensive network of lender options allows brokers to ensure that you are not only getting the sharpest rate, but that the mortgage product is also aligned with the client’s needs.
Now, a few details that you should know before you transfer/switch your mortgage:

YOU WILL HAVE TO SUPPLY DOCUMENTS
Just like when you went through the process the first time, you will have to supply documents to the new lender in order to transfer/switch.

YOU MAY HAVE TO PAY OUT CERTAIN COSTS
As mentioned above, there costs associated with your transfer/switch. If your mortgage is up for renewal and you are opting to transfer/switch these may include admin and legal fees. If you are opting to transfer mid-term to take advantage of a lower rate with a different lender, these may include your penalty and legal/admin fees. However, many lenders will offer up to $3,000 financed into your mortgage to assist in covering these if applicable

YOU WILL HAVE TO QUALIFY UNDER CURRENT REGULATIONS
With a transfer/switch, you are required to pass any and all regulations and stress testing measures may be applicable, however If you are looking at a transfer/switch and your previous mortgage funded prior to November 30, 2016 old mortgage rules apply (no stress test is required). This means
• You are grandfathered in previous under mortgage rules
• You can qualify at the contract rate rather than the stress test of contract rate plus 2% or the benchmark rate (currently at 5.34%)
• In simple terms: no stress testing required.

Before you consider moving, you should run through the numbers with a broker and ensure you qualify.

UNDERSTANDING YOUR PENALTY
If you are switching/transferring mid-term a penalty will apply to your mortgage. To find out what that penalty will look like, we encourage you to speak to your Dominion Lending Centres mortgage broker and have a clear understanding of what you will be paying out. If you are up for renewal and are looking to transfer, you will not have to pay a penalty and may or may not have the aforementioned fees associated with setting up the new mortgage with a new lender.

Remember, a broker is there to work with you to determine if a transfer/switch is right for you and to help you establish which lender will give you not only the best rate, but the most suitable mortgage product too!

Geoff Lee

Not all mortgages are insurable.

With the mortgage rule changes in recent years, lenders have had to make some adjustments to their rate offerings.

There are different tiers and rate pricing based on the following 3 categories:

1) Insured – a mortgage that is insured with mortgage default insurance through one of Canada’s mortgage insurers, CMHC, Genworth or Canada Guaranty. A mortgage insurance premium based on a percentage of the loan amount is added to and paid along with the mortgage.
2) Insurable – a mortgage that may not need mortgage insurance (20% or more down payment) but would qualify under the mortgage insurers rules. The client doesn’t have to pay an insurance premium but the lender has the option to if they choose.
3) Uninsurable – a mortgage that does not meet mortgage insurer rules such as refinances or mortgages with an amortization longer than 25-years. No insurance premium required.

Insured mortgages are the safest type of mortgage loan for the banks and the most cost-effective way of lending mortgage money, so clients seeking or in need of an insured mortgage will get the best rate offering on the market. Insured as well as Insurable mortgages can be bundled and sold as Mortgage Backed Securities (MBS) meaning banks can get that money back quickly so they can lend more out. While Insured mortgages get the best rates, Insurable mortgages are typically a close second. If a mortgage is Uninsurable that means the banks have to lend their own money and have to commit to that loan for the full term at least. This makes it a more expensive loan for the bank, so they pass the cost on to the consumer as a premium on the rate – typically 10-20 basis-points.

While there are rumours that the Government may start to allow refinances and 30-year amortizations to be insured again, no formal announcements are expected in the next few months.

In the meantime, consumers looking to tap into the equity they’ve built (consolidation, investment, home renovations) or wanting to keep their payments as low as they can (30-year amortization) are paying the price.
If either a refinance or a longer amortization is something you are considering, it’s wise to have a free analysis of your mortgage done so you can make an informed decision. If you have any questions, contact a Dominion Lending Centres broker near you.

Kristin Woolard