Mortgage [ˈmôrɡij] NOUN

General Bob Rees 17 Oct

Thank you to my DLC partner Kelly from BC for the below breakdown, very informative!

 

 

Mortgage [ˈmôrɡij] NOUN
With a residential mortgage, a home buyer pledges his or her house to the bank. The bank has a claim on the house should the home buyer default on paying the mortgage. In the case of a foreclosure, the bank may evict the home’s occupants and sell the house, using the income from the sale to clear the mortgage debt.

Mortgages in a Nutshell
Since homes are expensive, a mortgage is a lending system that allows you to pay a small portion of a home’s cost (called the down payment) upfront, while a bank/lender loans you the rest of the money. You arrange to pay back the money that you borrowed, plus interest, over a set period of time (known as amortization), which can be as long as 30 years.

When you get a mortgage loan, you are called the mortgagor. The lender is called the mortgagee.

How Do You Get a Mortgage?
The companies that supply you with the funds that you need to buy your home are referred to as “lenders” which can include banks, credit unions, trust companies etc.

Mortgage lenders don’t lend hundreds of thousands of dollars to just anyone, which is why it’s so important to maintain your credit score. Your credit score is a primary way that lenders evaluate you as a reliable borrower – that is, someone who’s likely to pay back the money in full WITHOUT a lot of hassle. A score of 680-720 or higher generally indicates a positive financial history; a score below 680 could be detrimental, making you a higher risk. Higher risk = higher rates!

How Mortgages Are Structured
Down payment: This is the money you must put down on a home to show a lender you have some stake in the home. Ideally you want to make a 20% down payment of the price of the home (e.g., $60,000 on a $300,000 home), because this will allow you to avoid the extra cost of Mortgage Default Insurance which is mandatory with all down payments of less than 20%.

Every mortgage has three components: the principal, the interest, and the amortization period.

Mortgages are typically paid back gradually in the form of a monthly mortgage payment, which will be a combination of your paying back your principal plus interest.

  1. Principal: This is the amount of money that you are borrowing and must pay back. This is the price of the home minus your down payment
    taking the above example, purchase price $300,000 minus $60,000 down payment to get a mortgage (principal) of $240,000.
  2. Interest rate: Lenders don’t just loan you the money because they’re nice guys. They want to make money off you, so you will be paying them back the original amount you borrowed (principal) plus interest—a percentage of the money you borrow.The interest rate you get from the lender will vary based on: property, lender, credit bureau, employment and your personal situation.
  3. Amortization means life of the mortgage, or how long the mortgage needs to be, in order to pay off the complete loan (principal) plus interest. Mortgage loans have different “amortizations,” the two most common terms are 25 & 30 years.Within the life of the mortgage (amortization) you will have a Term. The length of time that the contract with your mortgage lender including interest rate is set up (typically 5 years). After your term completes, you can renew your mortgage with the same lender or move to a new lender.

WHEN TO GET A MORTGAGE

First Step: connect with a Mortgage Broker for a mortgage before you start hunting for a home. You need to know what you can afford – especially with all the new government regulations.

Ideally you need a mortgage pre-approval, which an in-depth process where a lender will check your credit report, credit score, debt-to-income ratio, loan-to-value ratio, and other aspects of your financial profile.

This serves two purposes:

  1. It will let you know the maximum purchase price of a home you can afford.
  2. A mortgage pre-approval shows home sellers and their realtors that you are serious about buying a home, which is particularly crucial in a hot housing market.

Types of Mortgages
How do you figure out which mortgage is right for you? Here are the 2 main types of home loans to consider:

  1. Fixed-rate mortgage:This is the most popular payment setup for a mortgage. A fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
  2. Variable rate mortgage aka Adjustable Rate Mortgages (ARM) A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions and the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the term. These types of mortgages usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

How to Shop for a Mortgage?
Use a mortgage broker, a professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.

Brokers specialize in Mortgage Intelligence, educating people about mortgages, how they work and what lenders are looking for. Everyone’s home purchasing situation is different, so working with us will give you a better sense of what mortgage options are available based on the 4 strategic priorities that every mortgage needs to balance:

  • lowest cost
  • lowest payment
  • maximum flexibility
  • lowest risk

Most Canadians are conditioned to think that the lowest interest rate means the best mortgage product. Although sometimes that is true, a mortgage is more than just an interest rate. You can save yourself a lot of money if you pay attention to the fine print, not just the rate.

Banks tend to concentrate on the 5 year fixed mortgage rate (since that’s the best option for them)… rates are important, however your Dominion Lending Centres mortgage professional will look at the total cost of the mortgage. Brokers will advise & explain mortgage options, help you understand the implications of your choice and help you avoid the pitfalls of choosing a mortgage based on rates alone.

KELLY HUDSON
Dominion Lending Centres – Accredited Mortgage Professional
Kelly is part of DLC Canadian Mortgage Experts based in Richmond, BC

Robust Canadian Jobs Report in September

General Bob Rees 12 Oct

Thank you to our Chief Economist Dr Sherry Cooper!

 

The Canadian jobs market continued to surprise on the high-side–on track for one of its best years on record. This provides further confirmation to the Bank of Canada that additional easing in monetary policy is not necessary. The economy added 53,700 jobs in September, well above expectation, taking the year-to-date jobs gain to just over 358,000, the most in the first nine months of a year since 2002. The economy added 70,000 full-time jobs in September, with part-time employment down 16,300. Canada has added almost 300,000 new full-time jobs this year.

In September, employment increased in Ontario and Nova Scotia, while it held steady in other provinces.
More people were working in health care and social assistance, as well as in accommodation and food services. At the same time, there were declines in information, culture and recreation, and natural resources.

The number of self-employed workers increased, as did the number of employees in the public sector. The number of private-sector employees was virtually unchanged, although it was up 2.3% year-over-year.

The outsized jobs gain reduced the unemployment rate to 5.5% from 5.7% in August, near its lowest level in the past forty years. One difference in the September report from recent trends is that most of the job gains reflected mostly lower unemployment levels rather than rising labour force participation. The number of unemployed Canadians fell by 46,900 in September, while the labour force increased by just 6,800.

 

Wage Gains Rose Last Month

Another positive underpinning for the Canadian economy was the sustained rise in household incomes. The total hours worked last month were up 1.3% from a year earlier. Hourly pay rose 4.3% year-over-year in September, accelerating from a 3.7% pace in August. The last few months have posted the sharpest year-over-year increases in wage rates in a decade.

Bottom Line: This report lends ammo to the Bank of Canada to buck the tide of global monetary easing, at least for now. Few economists and investors believe, however, the country will be immune to a slowing global economy. Many expect the Bank of Canada will eventually be forced to cut interest rates. Swaps trading suggests one cut is still priced in over the next year.

The Bank of Canada’s next rate decision is October 30. There is so much geopolitical uncertainty in the world, emanating mostly from the US that no one can rule out a BoC rate cut sometime in the next year. The Canadian election results on October 21 will at least eliminate one uncertain issue, but a minority government were it to result, would only add to the uncertain stew.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres