When it comes to purchasing a home, most offers include conditions or subjects, which are requirements or criteria to be met before the sale can be finalized and the property is transferred. Some of the most common subjects include:

• Financing approval
• Home inspection
• Fire/home insurance protection
• Strata document review if appliable

The purpose of these subjects is to protect the buyer from making a poor investment and ensure that there are no hidden surprises when it comes to financing, insurance, or the state of the property.

These conditions are written up in the purchase offer with a date of removal. This is agreed to by the seller before the sale is finalized. Assuming the subjects are lifted by the date of removal, the sale can go through. If the subjects are not lifted (perhaps financing falls through or something is revealed during the home inspection), the buyer can waive the offer and the purchase becomes void.

However recently, especially in heightened housing markets, there has been an emergence of subject-free (or condition-free) offers. These are purchase offers that are submitted without any criteria required! Essentially, what you see is what you get.

Below we have outlined the impact of subject-free offers on both buyers and sellers to help you better understand the risks and outcomes:

Pros of Subject-Free Offers

• Buyers: The main benefit of a subject-free offer for a buyer is the ability to “beat the competition” in a heated market. However, it is not without risks.
• Sellers: Typically, a subject-free offer will include a competitive price, willingness to work with the dates the seller prefers, and evidence that the buyer has already done as much research as possible. If time is sensitive for the seller because they are trying to purchase another home or want to move as soon as possible, they may also choose your offer over subject offers to expedite the process.

Cons of Subject-Free Offers

• Buyers: As a buyer submitting a subject-free offer, you are assuming a great deal of risk in several areas including financing, inspection, and insurance:
  • Inspection & Insurance: If a buyer is also opting to skip the home inspection and home insurance protection subjects to have the offer accepted, then they assume huge risk as they do not know what they are getting and whether or not the property is up to code for insurance.
  • Financing: While buyers may feel that they have a pre-approval and so they don’t require a subject to financing, it is important to recognize that a pre-approval is not a guarantee of financing. If you are submitting a subject-free purchase based on a pre-approval, buyer beware. The financing is subject to the lender approving the property and the sale; from the price and location to type of property or other variables the lender deems important. By submitting a subject-free offer without a financing guarantee (or an inspection, title check, etc.), there is a risk that the deal can fall through. Even when you do not include subjects on the offer, you still are required to finance your purchase. In addition, as deals are submitted typically with a deposit, there is a risk that if the subject-free offer falls through the buyer will lose their deposit. This amount can range vary in the thousands and is typically a percentage of the purchase price or down payment.
  • Due Diligence: With subject-free offers, there is no opportunity for due diligence after the offer has been made. This requires the buyer to do all their research before their initial bid. Because it is firm and binding, a buyer who decides to back out will likely be met with serious legal ramifications. Submitting an offer without subjects is not due diligence and it is at the buyer’s behest.
• For Sellers: When it comes to the individual selling the property, there is less risk with subject-free offers but not zero. While the benefit is essentially there is no wait to accept the offer on the seller’s side, they do not know for sure if financing will come through.

Financing Around Subject-Free Offers

When submitting a subject-free offer, it is essentially up to the buyer to do as much due diligence as possible before submitting. They will need to identify what the lender is looking for to make sure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a subject-free offer should do their very best to secure financing beforehand.

Contractual Obligations

Be mindful when it comes to purchasing offers versus purchase agreements. While your purchase offer is a written proposal to purchase, the purchase agreement is a full contract between the buyer and seller. The purchase offer acts as a letter of intent, setting the terms you propose to buy the home. If financing falls through, for example, then the contract is breached and this is where the buyer may lose the deposit.

It is also important to be aware of a breach of contract in the event that a seller chooses to take action. For example, if you submit a subject-free offer of $500,000 and cannot secure financing for that offer and the seller turns around and is only able to get a $400,000 deal with another buyer, they could potentially sue the initial buyer for the difference due to breach of contract.

Preparing a Subject-Free Offer

If you have decided to go ahead with a subject-free offer, regardless of the risks, there are some things you can do to mitigate potential issues, including:

• Get Pre-Approved: Again, this is not a guarantee of financing when you do make an offer, but it can help you determine whether you would be approved or not.
• Financing Review: Identify what the lender is looking for to make sure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a subject-free offer should do their very best to secure financing beforehand.
• Do Your Due Diligence: Look into the property and determine if there have been major renovations or a history of damage. This could come in the form of a Property Disclosure Statement. While this statement cannot substitute a proper inspection, it can help identify potential issues or areas of concern. If possible, conduct an inspection before submitting your bid/offer.
• Get Legal Advice: This can help you determine your potential risk and ramifications of the offer should it be accepted, or otherwise.
• Title Review: Be sure to review the title of the property.
• Insurance: Confirm that you are able to purchase insurance for the home. Keep in mind, an inspection may be required for this but in some cases, you can substitute for a depreciation report if it is recent.
• Strata Documents (if applicable): Thoroughly review strata meeting minutes and any related documents to determine areas of concern.

While there are things that can be done to help with subject-free offers, it is still risky. Ultimately submitting an offer with subjects gives you the time and ability to gather information on the above, as well as access to the property or home for inspections.

If you are intent on submitting a subject-free offer, be sure to discuss it with your real estate agent as they can determine if a subject-free offer is necessary, or if perhaps a short closing window would suffice to seal the deal. A good realtor will keep you informed of potential interest and other bids during the process as well. Their goal should be to maximize your opportunity and minimize your risk. In addition, before making any offers, be sure to check with your DLC mortgage expert to discuss your mortgage and financing so you can make the best decision.

When traditional lenders (such as banks or credit unions) deny mortgage financing, it can be easy to feel discouraged. However, there is always an alternative option. The alternative options commonly include Alternative-A, B lenders, and private lenders. These lenders come in the following classifications:

Alt-A Lenders consist of banks, trust companies, and monoline lenders. These are large institutional lenders regulated both provincially and federally but have products that may speak to consumers who require broader qualifying criteria to obtain a mortgage.

B Lenders are similar to Alt-A lenders; they consist of banks, trust companies, and monoline lenders and are regulated. They offer better lending policies than A or Alt-A lenders.

MICs (Mortgage Investment Companies) are similar to Alt-A lenders but are organized under the Income Tax Act. They consist of an incorporated lending company comprising a group of individual shareholder investors who pool their money to lend for mortgages. These lenders follow individual qualifying lending criteria but tend to operate with an even broader qualifying regime.

Private Lenders are typically individual investors who lend their funds, but they can sometimes also be companies formed specifically to lend money for mortgages that carry a higher risk of default relative to a borrower’s situation. These types of lenders are generally unregulated and tend to cater to individuals with a higher risk profile.

All the classifications noted above consider risk when pricing mortgage products. As a result, this will generally lead to higher costs for the borrower, often in the form of a higher interest rate.

Before considering an alternative mortgage, here are some questions you should ask yourself:

• What issue is keeping me from qualifying for a traditional “A” mortgage today?
• How long will it take me to correct this issue and qualify for a traditional lender mortgage?
• How much do I have to improve my credit situation or score?
• How much do I currently have available as a down payment?
• Am I willing to wait until I can qualify for a regular mortgage, or do I want/need to get into a certain home today?
• Is this mortgage sustainable? Can I afford the larger interest rate?
• Can I exit this lender down the road if the lender does not renew, or I cannot afford this alternative option much longer?

If you are ready to proceed with an alternative mortgage due to a weaker credit score, or if you don’t want to wait until you can qualify with a traditional lender, here are some additional questions to ask while reviewing an alternative mortgage product:

• How high is the interest rate? What are the involved fees, and are they paid from the proceeds, added to the balance, or paid out of pocket?
• What is the penalty for missed mortgage payments? How is it calculated? What is the cost to exit the mortgage altogether?
• Is there a prepayment privilege? For instance, can you avoid penalties by making higher mortgage payments once a month?
• What is the amount of each monthly mortgage payment?
• What happens at the end of the term? Is renewal an option, and what are the renewal costs if applicable?
• What does the fine print entail?

When it comes to the alternative lending space, things can get complex. Contact your mortgage expert today if you’re considering an alternative lender, and I can help you source out various mortgage products, as well as review the rates and terms to ensure it is the best fit.

A “guarantor” is someone who guarantees the mortgage on behalf of the mortgage holder in case the mortgage holder cannot pay back the loan payment.

Typically, a guarantor is required when the buyer has a damaged or poor credit history OR lacks sufficient income to qualify for the loan. Adding a guarantor can help reduce risks and add extra security to prevent mortgage defaults.

It is important to note that a guarantor is not a co-signer. Here are some facts about guarantors and what makes them different from a co-signer:

1. The guarantor must be a spouse or immediate family member. A Co-signer could be a friend or distant family member.

2. A guarantor typically does not have their name on the property title but will be on a mortgage. In the case of a co-signer, the name is generally on both the title of the property AND the loan.

3. Guarantors cannot qualify for their mortgage or large loans if they are responsible for guaranteeing a different loan.

4. There is a heightened risk on the side of the guarantor as they are responsible for the entire mortgage amount should the borrower default. To qualify, they must meet the requirements for credit check, income, liabilities and assets. Any guarantor should seek legal advice before signing the loan to ensure they understand the contract.

Whether you want to be a guarantor for someone else’s mortgage, or you need one for your own, be sure to talk to your mortgage expert before making any decisions. Your mortgage professional can help you review your options and explain the terms of the agreement or answer any questions you may have.

While not the only factor to consider when choosing a mortgage, interest rates continue to be one of the most prominent decision criteria for any mortgage product. Understanding how mortgage rates are determined and the differences between typical fixed-rate and variable-rate options can help you make the best decision to suit your needs.

HOW RATES ARE DETERMINED

Banks set the prime-lending rate (the rate they offer their best customers), which is influenced by the Bank of Canada’s overnight rate because it impacts their own borrowing. Approximately eight times per year, the Bank of Canada makes rate announcements that could affect your mortgage, as variable mortgage rates and lines of credit move in conjunction with the prime-lending rate. For fixed-rate mortgages, banks use Government of Canada bonds. In the bond market, interest rates can fluctuate more often and can provide clues about where fixed mortgage rates will go next.

To put it simply: a variable-rate is based on the current Prime Rate and can fluctuate depending on the markets. In contrast, a fixed-rate is typically tied to the world economy, whereas the variable rate is linked to the Canadian economy. When the economy is stable, variable rates will remain low to stimulate buying.

FIXED-RATE VS. VARIABLE-RATE

Fixed-Rate Mortgage

First-time homebuyers and experienced homebuyers typically love the stability of a fixed rate when entering the mortgage space.

The pros of this type of mortgage are that your payments don’t change throughout the term. However, if the Prime Rate drops, you won’t be able to take advantage of potential interest savings.

Variable-Rate Mortgage

As mentioned earlier, variable-rate mortgages are based on the Prime Rate in Canada. This means that the amount of interest you pay on your mortgage could go up or down, depending on the Prime Rate. When considering a variable-rate mortgage, some individuals will set standard payments (based on the same mortgage at a fixed rate). This means that, should the Prime Rate drop and interest rates lower, they would end up paying more to the principal as opposed to paying interest.

If the rates go up, they will simply pay more interest instead of directly reducing the principal loan.

Other variable-rate mortgage holders will allow their payments to decrease with Prime Rate decreases or increase should the rate go up. Depending on your income and financial stability, this could be a great option to take advantage of market fluctuations.

Want to learn more about rates or need mortgage advice? Contact your mortgage expert today!

Most people who are thinking about a transfer or switch want to take advantage of a lower interest rate or to get a new mortgage product with terms that better suits their needs.

Up for Renewal?

If your mortgage is approaching renewal and you are considering a transfer or switch to an another lender – great news! You won’t be charged a penalty. BUT you are still required to qualify at the current qualifying rate and need to consider potential costs around legal charges, appraisal fees and penalty fees (if applicable). In some cases, the lender will offer you the option to include these fees in your mortgage or even cover the costs for you.

Currently have a Collateral Charge Mortgage?

If you have a collateral charge mortgage (which combines property and other debts as security for the loan), these loans cannot be switched; they can only be registered or discharged. This means you would need to discharge the mortgage from your current lender (and pay any fees associated) before registering it with a new lender (and pay any fees associated).

Still locked into your Mortgage?

If you are considering a transfer or switch in the middle of your mortgage term, you will likely incur a penalty for breaking that mortgage. Typically, transfers and switches are done to take advantage of a lower interest rate (and lower monthly payments), but you want to be confident that the penalty doesn’t outweigh the potential savings before moving ahead.

Things to consider for a transfer or switch:

1. You may be required to pay fees associated with the transfer or switch, including possible admin and legal fees.

2. You will need to re-qualify under the qualifying rate to show that you can carry the mortgage with the new lender.

3. You will be required to submit documents that may include, but are not limited to, the following (depending on the lender):

• Application and credit bureau
• Verification of income and employment
• Renewal or annual statement indicating mortgage number
• Pre-Authorized Payment form accompanied by VOID cheque
• Signed commitment
• Confirmation of fire insurance is required
• If your initial purchase down payment was below 20%, confirmation of valid CMHC, Sagen or Canada Guaranty insurance is required
• Appraisal
• Payout authorization form
• Property tax bill

If your mortgage is currently up for renewal, consider reaching out to your Mortgage Expert. Not only can I advise you of any penalties or fees that may be associated with your desired transfer or switch, but I also have the knowledge and ability to shop the market for you to find the best options to meet your needs. 

What is Alternative Lending?

The most common way to obtain a mortgage is through traditional banks or credit unions. It is common to experience discouragement and frustration when faced with mortgage financing rejections from these traditional institutions. However, if your mortgage situation does not align with these financing options, many alternative options are available to you. These alternatives provide more flexible lending guidelines that may better suit your specific needs. Here are the three types of alternative options:

1. Alt-A lenders: These include banks, trust companies, and monoline lenders. They are large institutional lenders regulated at both the provincial and federal levels. Alt-A lenders offer products with broader qualifying criteria, catering to consumers who require more flexibility to obtain a mortgage.

2. Mortgage Investment Companies (MICs): Similar to Alt-A lenders, MICs are organized under the Income Tax Act. They consist of incorporated lending companies formed by individual shareholder investors pooling their funds to provide mortgage loans. MICs follow individual qualifying criteria and generally offer even greater flexibility in lending guidelines.

3. Private lenders: Typically individual investors. Although sometimes specialized lending companies, these lenders provide funds for mortgages that carry a higher risk of default relative to a borrower’s situation. Private lenders are generally unregulated and tend to cater to individuals with a higher risk profile.

All of the above lender classifications price mortgages based on risk. The broader the qualifying criteria for a particular mortgage contract, the higher the risk assumed by the lender. Consequently, borrowers typically face higher costs in the form of increased interest rates.

Before considering an alternative mortgage, it is crucial to ask yourself the following questions:

• What is currently preventing me from qualifying for a traditional “A” mortgage?
• How long will it take to address this issue and qualify for a mortgage from a traditional lender?
• How much do I need to improve my credit situation or score?
• What is the amount of my available down payment?
• Am I willing to wait until I can qualify for a regular mortgage, or do I need to secure a home quickly?
• Can I sustain this mortgage considering the higher interest rate?
• Can I switch to another lender in the future if the current lender does not renew the mortgage or if I can no longer afford this alternative option?

If you are ready to proceed with an alternative mortgage due to a weaker credit score or a desire to avoid waiting for qualification with a traditional lender, here are additional questions to consider when evaluating alternative mortgage products:

• What is the interest rate? Are there any associated fees, and if so, are they paid from the loan proceeds, added to the loan balance, or paid separately?
• What penalties are imposed for missed mortgage payments? How are these penalties calculated? What are the costs associated with terminating the mortgage agreement?
• Is there a prepayment privilege? For example, can you make higher monthly mortgage payments without incurring penalties?
• What is the cost of each monthly mortgage payment?
• What options are available at the end of the mortgage term? Can you renew the mortgage, and if so, what are the associated costs?
• What does the fine print entail?

When it comes to the alternative lending space, things can become complex. If you are considering an alternative lender, it is advisable to contact your DLC mortgage expert who can help you explore various mortgage products, review rates and terms, and ensure the best fit for your needs.

Your mortgage amortization period is the number of years it takes to pay off your mortgage. The amortization length affects how quickly you become mortgage-free and how much interest you pay. A longer period means more interest, while a shorter one means less interest but higher payments.

Typically lenders use a 25-year benchmark for mortgages. It is also the basis for standard mortgage calculators. However, you have other options. Amortization periods can be as short as 5 years or as long as 35 years.

If you go for a shorter amortization period, you’ll pay less interest over the mortgage’s life. You’ll also become mortgage-free faster and gain access to your home equity sooner. However, shorter periods mean higher monthly payments. If your income is irregular, you have a tight budget, or you’re a first-time homeowner, a shorter period may not be ideal as it ties up more cash flow in mortgage payments.

On the other hand, longer amortization periods have their advantages too. Smaller monthly mortgage payments make homeownership less overwhelming for first-time buyers and free up extra cash for other expenses. Additionally, opting for a longer period may help you buy your dream home sooner by utilizing standard mortgage payments. In some cases, you might even qualify for a slightly higher mortgage value compared to a shorter period, depending on your situation.

Your mortgage professional can assist you in selecting the best amortization period that suits your needs and ensures sufficient cash flow. It is worth noting that you’re not stuck with your chosen amortization schedule forever. You can adjust its length or make extra payments at a later date if you have pre-payment options.

It is recommended to re-evaluate your mortgage at renewal time, which occurs every 3, 5, or 10 years depending on your mortgage product. It is an excellent opportunity to review your amortization and payment schedules and make changes if needed.

If you have any questions or are ready to purchase a home, don’t hesitate to contact your mortgage professional for expert advice!

Whether you have made an offer on a home already or are still in the process of looking, you already understand that buying a home is likely the largest investment you will ever make.

When it comes to your mortgage application, there are a few things that you should avoid doing while you are waiting for approval – such as making large purchases (i.e. a new car), applying for new credit, pulling additional credit reports, etc. Another issue that can come up is the loss of your job.

What you can afford to qualify for in relation to your mortgage depends on your income. As a result, the sudden loss of employment can be quite detrimental to your efforts. So, what do you do?

Should You Continue With Your Mortgage Application?

If you have already qualified for a mortgage, but your employment circumstances have changed, your first step is to disclose this to your lender. They will move to verify your income prior to closing and, if they have not been told in advance, it may be considered fraud as your application income and closing income would not match.

In some cases, the loss of your job may not affect your mortgage. Some examples include:

• You secure a new job right away in the same field as previously. Keep in mind, you will still need to requalify. However, if your new job requires a 3-month probationary period then you may not be approved.
• If you have a co-signer on the mortgage who earns enough income to qualify for the value on their own. However, be sure your co-signer is aware of your employment situation.
• If you have additional sources of income such as income from retirement, investments, rentals or even child support they may be considered, depending on the lender.

Can You Use Unemployment Income to Apply for a Mortgage?

Typically this is not a suitable source of income to qualify for a mortgage. In rare cases, individuals with seasonal or cyclical jobs who rely on unemployment income for a portion of the year may be considered. However, you would be asked to provide a two-year cycle of employment followed by Employment Insurance benefits.

What Happens During Furlough?

If you did not lose your job entirely but have instead been furloughed or temporarily laid off, your lender may take a wait-and-see approach to your mortgage application. You would be required to provide a letter from your employer with a return-to-work date on it in this situation. However, if you don’t return to work before the closing date, your lender may be required to cancel the application for now with resubmitting as an option in the future.

Have You Talked to Your Mortgage Professional?

Regardless of the reason for the change in your employment situation, one of the most important things you can do is contact your mortgage expert directly to discuss your situation. I can look at all the options for you and help with finding a solution that best suits you.

When it comes to homeownership, many of us dream of the day we will be mortgage-free. While most mortgages operate on a 25-year amortization schedule, here are some ways you can pay off your mortgage quicker:

1. Review Your Payment Schedule: Taking a look at your payment schedule can be an easy way to start paying down your mortgage faster, such as moving to an accelerated bi-weekly payment schedule. While this will lead to slightly higher monthly payments, the overall result is approximately one extra payment on your mortgage per calendar year. This can reduce the total amortization by multiple years, which is an effective way to whittle down your amortization faster.

2. Increase Your Mortgage Payments*: This is another simple change you can execute today to start having more of an impact on your mortgage. Most lenders offer a pre-payment privilege that allows you to increase your payment amount without penalty. This payment increase allowance can range from a 10% to a 20% payment increase from the original payment amount. If you earned a raise at work, or have come into some money, consider putting those funds right into your mortgage to help reduce your mortgage balance without changing your spending habits.

3. Make Extra Payments*: For those of you who have pre-payment privileges on your mortgage, this is a great option for paying it down faster. The extra payment option allows you to make an annual lump-sum payment of 15-20% of the original loan amount to help clear out some of your loans. Some mortgages will allow you to increase your payment by this pre-payment privilege percentage amount as well. It is another great way to utilize any extra money you may have earned, such as from a bonus at work or inheritance.

4. Negotiate a Better Rate: Depending on whether you have a variable or a fixed mortgage, you may want to consider getting a better rate to reduce your overall mortgage payments and money to interest. Ideally, it is done when your mortgage term is up for renewal while the interest rates start coming back down. It could be a great opportunity to adjust your mortgage and save. This may be available with your existing lender or moving to a new lender with a lower rate offer (known as a switch and transfer).

5. Refinance to a Shorter Amortization Period: Lastly, consider the term of your mortgage. If you’re mortgage is coming up for renewal, this is a great time to look at refinancing to a shorter amortization period. While this will lead to higher monthly payments, you will be paying less interest over the life of the loan. Knowing what you can afford and how quickly you want to be mortgage-free can help you determine the best new amortization schedule.

*These options are only available for some mortgage products. Check your mortgage package or reach out to me to ensure these options are available to you and avoid any potential penalties.

If you are looking to pay your mortgage off quicker, don’t hesitate to reach out your mortgage expert today! I can help review the above options and assist in choosing the most effective course of action for your situation.