Refinancing may still be an option

To no one’s surprise The Bank of Canada has left its key interest rate unchanged at 0.5%. After reading the latest Monetary Report, it doesn’t sound like it will raise its policy rate any time soon. Inflation is flat, as is wage and export growth, and there is still uncertainty in the US and globally.

Despite record low interest rates, some new home buyers are finding it challenging to qualify for a mortgage due to a new round of rule changes announced late last year. These changes have also affected existing mortgage holders who may want to refinance to get a lower rate.

While low interest rates and robust regional housing, markets continue to be the norm, Canadians are still burdened with record-high debt loads. The ratio of debt to disposable income rose to 167.3% by the end of 2016. That means Canadians owe $1.67 for every dollar of disposable income, up from $1.66 the year prior.

If you’re sitting with equity in your home yet can’t seem to manage your debt payments, refinancing could still be an option. With credit card interest rates often pushing the 20% range and unsecured lines of credit in the 7% and higher range paying off high-interest debts can make sense.

Let’s review a refinance. Specifically, you are increasing the amount of your mortgage to pay off debt. Your actual mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm, but your overall monthly payments should decrease. You could be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.

Here are some reasons to consider a refinance:

Decrease your overall monthly debt payments by using your equity to pay off those high-interest credit cards or unsecured loans, which can help you better manage your budget.
You can refinance to purchase another property. Using the existing equity in your home can be a great way to buy a rental property which, if done right, can also make the interest you pay tax deductible.
You could also take out some of the equity for investment purposes.
Or you may want to refinance to renovate.

As you can see there are many factors to consider before deciding to refinance. Each individual’s financial situation is different. Call me and we can discuss the options available to you.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

What’s going on with my appraisals

Changes in mortgage rules for home buyers and insurers certainly have had an impact on the housing market, and those changes have impacted property appraisals as well. Conventional mortgages – up to 80% of the value of the property – historically, were required to have a full appraisal. Now, in many areas of the country, an appraisal may also be required on insured mortgages — 80 to 95% loan-to value.

The decision to approve a conventional mortgage, after all other lending criteria have been satisfied, is made on a property’s fair market value. This is defined as the market value of an interest in land at the highest price reasonably expected, when sold by a willing seller to a willing buyer, after an adequate amount of time and exposure to the market.

So who determines the value of that property? One could argue that the market itself determines the value, which is true, but from a lender’s perspective that number must come from an independent third-party – the appraiser. An appraiser, who is specifically trained and has sufficient experience, will be asked to offer an impartial, written opinion of the property’s value.

Realtors normally use a comparative market analysis (CMA) to evaluate a property’s value based on local market data. Agents analyze listing and sales data for comparable properties in the area to recommend a price to list or to offer. However a CMA is not an appraisal. Although appraisers use the CMA approach, they use it in combination with other factors to determine the value of a property.

The major difference is that appraisals are done for a specific client — the lender. Because real estate is the major security for mortgages, the market value estimate needs to be as accurate as possible. Appraisers use ‘sold’ properties information only and compare similar property types, in close proximity, that have sold within a relatively short period of time – usually 90 days.

Not all residential properties are subject to a traditional appraisal. If the property is in an established area with similar properties then sometimes the price can be validated electronically. This model of appraising property, called automated valuation model (AVM), has become quite popular in the last 10 years.

However, given the nature of the housing market these days, mortgage lenders have moved away, in many areas, from AVMs for conventional mortgages, and for some high-ratio mortgages as well, and are asking for live, full on-site appraisals.

At the end of the day, an appraisal must reflect a property’s realistic true market value and needs to be backed up with accurate data.

So why does an appraisal come in lower than expected?

With the introduction of bidding wars, where, in some areas, prices may be artificially inflated, appraisers are still tasked with coming up with a property’s fair market value. Rapidly changing markets can be very challenging for an appraiser to properly evaluate a home’s worth.

Appraisers will try to get to the purchase price when evaluating a property. However, sometimes the sale is a few weeks ahead of the market. If prices are increasing, it may not show up in their analysis yet and the appraisal will reflect a lower value.

At the end of the day, the appraisal has to be a realistic evaluation of a property’s true market value and be backed up with data.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

The Reasons You May Be Declined for a Debt Consolidation Loan

When individuals begin to experience financial difficulties, one of the first things they do is consider contacting debt consolidation Toronto firms. This is an option for solving debt issues by lowering interest rates while also combining all debts into a single monthly payment that is more manageable for them. Although this is an excellent idea for many individuals, getting approved for this type of loan is not as simple as many people believe.

The following article outlines several reasons why a lot of people are declined when they apply for debt consolidation loans. Once you understand why you can be denied, you can discover what you can do to improve your chances of being approved.

Credit Score and Credit History Issues

This is generally the primary reason why you will be denied when applying for a loan to consolidate your debt. Once a lender receives your credit report, they will look for a history of delinquent payments, judgments and current debt collections against you. These are factors that can negatively affect your credit score.

If you have several outstanding high balances, they can complicate the problem even further. With so many deciding factors, you should take the time to research how credit reporting agencies calculate consumers’ credit scores.

Low Income

Typically, payments for debt consolidation loans are more than the minimum payment you are probably making on your credit cards. Unfortunately, by the time an individual realizes that debt consolidation is an option for them, they may not be able to make more than a minimal payment.

Were you aware that the minimum payments most credit card companies require are so low, you would be paying the balance off in decades and not months? This is true if you stopped using the card altogether, and simply made the minimum payment.

A debt consolidation loan does not give you the option of paying the loan off over the course of several years, unless the loan is secured by collateral like a home. In this case, the loan would simply be a second mortgage. These loan payments are scheduled so the entire loan can be paid off within 5 years. This will mean that every payment would need to be set at an amount that would allow you to pay it off within this period of time.

If it is determined that your income is too low to cover the estimated monthly repayment amount, you will be declined.

A Lot of Debt

Most credit unions and banks will generally only allow applicants to borrow no more than 40% of their gross yearly income. So, what does this mean? This means that should you decide to apply for a loan with your bank, the bank will combine the proposed loan with your current debt payments. This will determine if your TDSR (Total Debt Service Ratio) exceeds 40% of the total income you make before taxes. If the loan will place you at a percentage higher than this percentage, you will have to consider trying to apply for a smaller loan or even forgoing the loan completely.

If you have been denied a debt consolidation loan, consider asking someone to co-sign. You can always speak to a counselor to help you gain some perspective on your financial situation, along with ways to remedy your situation.

Debt and debt settlement services

The debt-to-income ratio has hit the headlines again. This time the ratio rose to 167.3 % in the fourth quarter of 2016 compared to 166.8% in the third quarter. That means for every dollar of disposable income, consumers owe $1.67. Approximately 63% of that debt is in mortgages.

While this increase worries some policy-makers, studies have shown that consumers have been able to pay their debt relatively easily. Low interest rates have allowed consumers to pay down more of their mortgage principal, with payments split almost evenly between interest and principal in the fourth quarter.

But for some, the debt load is unmanageable and they search for solutions. You are no doubt familiar with advertisements from debt settlement services that promise to settle a consumer’s outstanding debt, for a fee. The caveat is buyer beware. If you’re considering this option, make sure to do your research and find a reputable company to work with. Or, I may be able to refer you.

Before you pay upfront fees or service charges, I may be able to help. Much of what debt settlement services offer can overlap with the services of a licensed mortgage broker.

Here’s how it works. Mortgage brokers can arrange debt consolidation on a mortgage renewal or on a refinance. When arranging a consolidation mortgage loan on a refinance or renewal the amount of the mortgage principal may be increased to pay out the total debt amount. This becomes part of the mortgage commitment and a condition of the mortgage loan. On closing, your lawyer will disburse the funds to your creditors and register the new mortgage.

What you need to know
A refinance alters the terms and conditions of your mortgage; specifically you are increasing the amount of your mortgage to pay off debt. Your mortgage payment may or may not increase, depending on a number of factors, and you may incur a penalty to break your existing mortgage if you are refinancing midterm. Depending on your current mortgage you could be paying off the refinanced debt at a much lower interest rate, which could save you thousands of dollars in interest in the long run.

As with all renewals, it’s always a good idea to review your mortgage with a mortgage broker who can shop the rates for you and get you the best deal, tailored to your particular situation. And, if you decide to switch lenders, there are no penalties at renewal time.

One of these options may be the perfect solution if you’re struggling with debt. Call me today for more information.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

Start Getting Out Of Debt Now

Debt sucks and it can ruin a lot of things for you. It can cause you to lose your home or to not be able to buy a home in the first place. It can make it impossible to get a loan, even to get a new car when your old one breaks down.

It’s not easy getting out of debt either. Like weight gain, you didn’t go into debt overnight or that quickly, so it will take some time to work your way out of it. Here are some things you can start working on in order to dig your way back out of debt.

Pay Off Those Loans

Start by paying off any loans you have out there. Loans are often in large sums of money, so getting them paid off can help with a big chunk of your debt. If you have larger loans you’re not going to be able to pay them off over night.

One thing that may help some is to pay off more than just the minimum you owe. This will help you begin to knock off that debt a little bit quicker and bring down the amount that’s getting added to it monthly from your interest rates.

Clear Those Credit Cards

After your bigger loans (and even the small ones) are dealt with, it’s time to start clearing up your credit card debt. Do not cancel any of your credit cards until you have them all down to a zero balance. This will do more bad for your credit than good.

While you’re working on paying off your credit cards you shouldn’t be using them or applying for new ones. Instead, use cash when you need to shop, or a debit card directly connected to the money already in your bank account. You’re just making it harder to pay them down if you keep using them.

Looks At Your Credit Report

Now that you’ve been doing some work on your open accounts, it’s time to take a look at your credit report and see what kinds of things you’re getting penalized for when it comes to your credit score. Find out if you can clear any of these debts or if they are items that have already been charged off.

Cut Back On Bills/Expenses

Once you’ve dealt with all of that debt you want to do what you can to make sure you don’t find yourself in debt again. You may even want to start doing some of this ahead of time so that you have more money to go toward paying off your debts.

This includes finding ways to use less electricity, watching your heater and air conditioner temperatures, and even finding things you can cut from your entertainment expenses. If you have both cable and a few streaming accounts, cut one or more of them. You don’t need them all!

The Four Types of Creditor Insurance

Home is more than a place you live. It’s your family’s haven from the world. But what if something happened to you? What would happen to the home you’ve invested so much in? You wouldn’t think about owning a home without insuring it, yet the odds of your house burning down is more remote compared to the odds of experiencing a life-changing event such as a job lay-off or a disabling accident.

Mortgage payments don’t stop when you’re unable to work so many home owners opt-in for mortgage creditor insurance. This type of mortgage protection insurance preserves ownership of your family’s home by making sure the mortgage keeps getting paid – even during the most difficult times.

Here are four types of mortgage insurance available:

Life Coverage: Mortgage life insurance provides security to both you and your insured co-borrower. If your co-borrower does not qualify for life insurance, you can still apply. Also known as mortgage insurance or creditor insurance, it’s offered by lending institutions and us. It is a life insurance policy that pays the balance of your mortgage to the lending institution if an insured person listed on the mortgage passes away.

Disability Coverage: This insurance is designed to pay a portion or all a homeowner’s mortgage payment if they become disabled — up to 24 months per occurrence. Individuals who opt to take advantage of this type of insurance need to take care to understand the policy completely. Determine the length of time the policy will pay mortgage payments during an episode of short-term or long-term disability. What dollar amount of the mortgage does the policy pay? Is there a waiting period associated with payment from the policy?

Critical Illness Coverage: What if it happens to you? When you survive a critical illness, you may not be able to return to work and your expenses could increase dramatically. If you are diagnosed with one of the 15 covered critical illnesses, based on our service provider’s criteria, which includes certain types of cancer, your mortgage payments are covered for 24 months, whether you return to work or not. Key questions to ask: What critical Illnesses are covered? What happens if I have an acute heart attack, recover in a few weeks or months, and return to work? Does my disability insurance cover me for living benefits? What cancers are covered? Do I need to take a medical examination? Mortgage Critical Illness Insurance is a benefit you enjoy while you are alive. It builds on your Mortgage Life Insurance to complete your protection.

Accidental Job Loss Coverage: If you are injured or are unable to work or become involuntarily unemployed, your monthly mortgage payments will be covered up to six months per occurrence.

If you don’t have any of these coverages now on your mortgage, we may be able to add them on.

Call me for more information.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

Five Clever Ways To Pay Off Student Loans (Or Keep Them Out Of Collections)

Student loans can be like a heavy weight on your shoulders and if you don’t get control of them quickly they can consume your life. It’s important to get them dealt with quickly. You went to college with the purpose of getting a  good job, so get job hunting before you even graduate. You should also start paying your loans (at least the interest) while you’re still in school.

When it comes to paying off loans you want to do it quickly, to save money,  but you also want to make sure you have enough money to live on as well. That could mean applying for lower monthly payments or coming up with some other ways to make money on the side.

Consolidate Them

Most of the time college loans don’t just come from one place, so you may have two or more loans you’re paying off. If you want to make it so you only have one payment (and a lesser one at that) to make each month you should look into debt consolidation for your student loans. By lowering your monthly payment and only having one to make at a time you can work toward getting that debt under control without going into debt in other parts of your life.

Start A Crowdfunding Campaign

If you simply cannot come up with the money on your own, you may want to consider setting up a crowdfunding campaign. At one time there were only a couple to choose from, now it seems like there are endless options. Look for one that will be more open to this kind of money raising.

If you have the option, consider making a video to post on your campaign page. People are more likely to donate if they see the person looking for money and if you explain to them clearly why you need help. Make sure to share your campaign in as many places as possible (the more people that see it the better chances you have of getting donations).

Pay Your Interest Rates

At the least, you should be paying the interest on your student loans. This will at least keep your costs set at what you own and not have it continually rising thousands of dollars a year. If you can, toss an extra hundred dollars in on top of that at start chipping away at what you own, which will slowly decrease the amount of interest you accrue.

Consider Loan Forgiveness

If you have been making steady payments on your loans but are just not getting it under control, you may want to look into college loan forgiveness. Peruse the subject online and reach out through the proper channels to find out what it takes to qualify. You could have your loans fully expunged within a few years.

Alternative lenders go mainstream

For some, getting a mortgage from a bank has become a bit more challenging – even if your credit score is good If you don’t qualify using the benchmark rate, regardless ofwhat mortgage rate and term you opt for – this has been called the” stresstest” — then you may be out of luck. With the introduction of new mortgagerules last year, the Government tightened mortgage lending guidelines inresponse to concerns that some markets in Canada are overheated and thatCanadian debt levels continue to increase.

The new mortgage rules have also had an impact on those who want to refinance their mortgage loan. And at renewal time, if you want to increase your existing loan, change your amortization or shop for a better rate, the rules may have an impact as well.

Despite the challenges, there are solutions. A bank is not the only option for a mortgage. The new mortgage rules have created an opportunity for a variety of specialized lenders to enter the market who are flexible and open to reviewing a variety of situations and has led to a growing pool of mortgage funds.

In a nutshell – they’ve gone mainstream
These lenders are not limited to private individuals with money to lend, either individually or as part of an investment pool. Mortgage brokers still have access to those funds; however, the market is also seeing an increase in the number of Mortgage Investment Corporations (MICs) as well as smaller lenders with products to fill the gap.

Many alternative lenders put more weight on the equity in a property, rather than on the work you do or on the credit challenges you may have.

Smaller institutional lenders in some regions across Canada, like credit unions, however, may offer specialized lending with affordable interest rates, reasonable lending fees and flexible underwriting.

A few benefits of specialized lending:

Quick closings: The key to a quick close is having your financing set up quickly — specialized lending can make that happen.
Terms of the loan: These loans are for short periods of time, usually no more than two or three years.
Great for investors: Because specialized lenders have flexibility, they will look at those fixer-upper rental properties with a keen eye and may fund both the purchase and the home improvements.
Diverse repayment options: This is especially helpful for entrepreneurs. Payments can be structured more creatively and may include interest-only payments and balloon payments at the end of the term or on closing of a sale.
Construction financing: Bank construction financing can be riddled with red tape. Private lending may get the borrower more money, and quicker access to construction draws, which in the end, could save time and money when building a home.

For more information and to find a lender who will meet your needs, call me today!

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com

Debt freedom is beginning to feel like an impossible dream

Debt freedom.  We all want it.   But it’s beginning to feel like an impossible dream.

Many of us feel trapped in unfulfilling jobs that we need to pay the bills.  Our salary may not go up as much as we would like each year, if it goes up at all.  The long hours we put in may barely allow us to earn enough to keep up with the increasing cost of living. Even if we are lucky to have a job we love, finding enough money to pay our bills and still feel like we have enough left to enjoy our life is a challenge that affects more people than you may think.

I know this first-hand.  I’m a Certified Financial Planner professional who has spent the last seven years meeting with clients – and listening as different people told me the same story, time and again. I’m here to tell you that you’re not alone.  Ipsos Reid let us know that in 2016, 48% of Canadians were within $200 per month of not being able to pay all of their bills. The stress is formidable, and honestly, most of us have been there.

Before I became a financial planner, my husband Cameron and I were in the same situation.  We moved from Winnipeg to Metro Vancouver in the summer of 2008 right before the financial markets crashed. We were 24 years old, neither of us had jobs waiting for us, and we found ourselves with a line of credit that grew to $10,000. As time passed we found work, paid off our line of credit and bought a townhouse.  Over the next six years we put over $150,000 toward our mortgage debt.  When we began, I was earning $40,000 per year and my husband was making $38,000. In 2011, the National Household Survey showed a median income of $76,000 across the country.

So how can two kids in their mid-twenties with a salary right around the median make that much progress? When we began, we didn’t have all the answers. All we knew was that we wanted to live a debt free life – to experience the freedom that comes with not owing money to anyone and living in a fully paid-for home.

I began to separate our decision-making into two categories: big decisions and budget decisions.  The big decisions are the choices that take up the largest percentage of our income, such as where we choose to live, the type of home we choose to live in, our transportation costs and so on.  These choices are not always easy to change in the short term but they are important because they determine how much money we have left to spend on everything else.  We chose to buy a townhouse, close to public transit and well below the mortgage amount we qualified for.  Once all of the costs associated with these choices were factored in, it was much easier to create free cash flow.

Which bring us to budget decisions. These are the day-to-day spending choices we make with the money left over once the big-ticket items are paid.  If the big decisions we’ve made fit with our income level, we will have enough money left to choose what we do next. This means we can enjoy a lifestyle we love, and have enough free cash flow left to begin accelerating our financial goals.

If the big decisions don’t fit our income level, things start to grind to a halt. It may begin with throwing that one bill on the credit card or line of credit, then, when an unexpected expense occurs, it happens again – and reinforces our dependence on debt.  Over time, we start to make minimum payments on our credit cards because the odds are stacked against us. No matter how hard we work at it today, we’ll need access to that credit again tomorrow, and the cycle will continue. Before we know it, we’ve stopped believing that we can become debt free.

It doesn’t have to be that way. But trying to scrimp and squeeze out a lifestyle when the big decisions don’t fit means that our financial success is based entirely on our willpower.  Instead of spending our money on what we want, we’re forcing ourselves to make hard choices. We are trying to squeeze another $50 out of a budget that’s been pushed to the max, when really we should be looking at why there’s only $50 left. 

Our ability to achieve financial success depends on how well we integrate our finances with our lifestyle choices. Cash flow is key, but the amount of cash flow we have is all based on how we structure our lifestyle.  My book, The Debt-Free Lifestyle tells the story of what worked for us – and what didn’t – because no one should have to go through this alone.  It’s available on Amazon or at any Chapters/Indigo/Coles locations across the country.  You can visit me online at www.debtfreelifetyle.ca and follow our personal finance journey on the blog, listen to the podcast and get a free study guide to help you take the first steps toward your own debt-free life.                                                                                                                                                 

Looking forward to 2017!

This past year we saw many challenges in the housing sector. There were the recent changes to the mortgage rules that included a “stress test” for all insured mortgages. This means that all insured mortgages must be qualified at the benchmark rate, which is currently 4.64%. This may affect home buyers with less than 20% down payment who are looking for a fixed rate mortgage.

We saw housing prices increase in some areas of the country while in other areas we saw a slowdown of housing activity, and yet other parts of the country are still feeling the effects of falling oil prices. We’ve also seen the fixed-rate on mortgages start to climb due to the upward pressure on bond yields and increases to the cost of funds.

The Canadian dollar is trading at approximately 74 cents to the US dollar (at the time of this writing) and there is concern about high consumer debt. The market is still jittery about the policies of the incoming US president. Yet Canadians are resilient. Despite gloomy predictions, despite increasing debt loads, despite all the changes we have endured, we continue to look on the bright side and consumer confidence is high.

While the housing market did slow somewhat in many parts of the country, there are signs of life. While there are still some issues surrounding affordability for first time home buyers, the market appears to be self-correcting, as many economists predicted it would.

The Canadian Real Estate Association’s prediction for 2017 is a mixed bag with sales easing slightly in some provinces and rising in others. The national average home price is expected to decline in 2017, easing affordability for first time home buyers. It seems the market is balancing itself with an increasing supply of listings to meet demand in some markets.

If you’re thinking of buying a new home, let’s do our own stress test. Too often, consumers focus on the total mortgage amount they qualify for instead of looking at their desired lifestyle and retirement goals. If you’re in the process of arranging a new mortgage, renewing a mortgage or refinancing an existing mortgage, then let’s stress test it.

Since we’re starting a new year, it’s also a good time to discuss any financial changes to your household and if and how that will affect your mortgage. Together, we will review your financial situation and tailor a solution that works for you. Call me today.

Wishing you health, happiness and prosperity in 2017.

Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta) and can be contacted at www.guythemortgageguy.com