Having the biggest and best home on the block sounds great – but not if it is at the expense of your life and monthly finances. Be smart about your budget and avoid buying a home at the very top of your pre-approval value, which might lead to cash flow issues and being “house poor” down the line.

Home Expenses

When considering your home, it is important to look beyond the purchase price and mortgage cost. Owning a home entails additional financial responsibilities such as maintenance, property taxes, utilities, and more. Even if you can afford to purchase an $800,000 home, it is crucial to evaluate whether you can comfortably manage these ongoing expenses.

In terms of your home-related expenses and your overall monthly budget, the costs associated with maintaining your home should not surpass 35% of your total monthly income.

Monthly Budget

To help you keep track of your finances, consider breaking up your monthly budget into the following categories:

• Housing – mortgage payments, property taxes, utilities, etc.
• Transit – car payments or transit passes, gas, maintenance, etc.
• Debt – payments to credit cards, lines of credit, etc.
• Savings – your long-term savings for retirement, etc.
• Life – food, vacations, fun, medical, childcare, etc.

From there, you would want to look at how much you spend on each category. Below is a good rule of thumb:

• Housing – 35% of your monthly income
• Transit – 15% of your monthly income.
• Debt – 15% of your monthly income
• Savings – 10% of your monthly income
• Life – 25% of your monthly income

By spending too much on housing, you are forced to sacrifice in other areas of spending such as your life or savings, but it is better to be life RICH than house POOR.

If you are unsure what you should budget for your new home, or have questions about making your home costs more affordable (such as changing your mortgage payments), don’t hesitate to reach out to your mortgage expert today!

New to mortgages? Have questions but not sure where to start? Here are the most frequent mortgage questions with answers:

1. What is the best interest rate I can qualify for?

Your credit score affects the interest rate you qualify for. Higher risk leads to higher rates. While the interest rate isn’t the most crucial factor in your mortgage, it is still important. However, opting for the lowest rate might mean losing pre-payment privileges or porting options. Consider your mortgage holistically, keeping your current and future needs in mind.

2. What credit score is needed to qualify for a mortgage?

If your credit score is 680 or above, you are seen as a strong candidate for a mortgage. Higher scores above 700 offer even lower rates. For those with lower credit scores, the size of the down payment becomes crucial. A sufficient down payment reduces lender risk, opening up lower rate options.

3. What happens if my credit score isn’t great?

There are five main things you can do to improve a low credit score.

• • Pay down credit cards so they’re below 70% of your limits. Revolving credit like credit cards have a more significant impact on credit scores than car loans, lines of credit, or other types of debt.
  • Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this also affects your score.
  • Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other interested parties view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.
  • Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off.
  • Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

4. What’s the maximum mortgage I can qualify for?

To determine what you can afford, try the My Mortgage Toolbox app (https://dlcapp.ca/app/yenchifrank-feng) available on the Apple App Store and Google Play. It offers helpful calculations for finding your affordable amount, estimating monthly payments, exploring payment frequencies, and more. You can even get pre-qualified through the app, and when you’re ready to shop, follow up with a proper mortgage pre-approval. This will help you establish your budget and gain clarity on your mortgage expenses.

5. How much money do I need for a down payment?

The minimum down payment required for purchasing a home is as follows:

• Purchase price $500,00 or less: 5% of the purchase price
• $500,000 to $999,999: 5% of the first $500,000 of the purchase price and  10% for the portion of the purchase price above $500,000
• $1 million and over: 20% of the purchase price

It is advisable to aim for a 20% down payment to avoid mortgage default insurance and, in certain situations, secure a more favorable interest rate.

6. What happens if I don’t have the full down payment amount?

It can be hard to put together a down payment. Fortunately, there are many programs available that will allow you to utilize different forms of down payments through First Time Home Buyer Program, RRSP withdrawal or gifting from an immediate family member.

7. Should I go with a fixed- or variable-rate mortgage?

The answer to this question depends on your personal risk tolerance. If you are a first-time homebuyer or have a defined budget for your mortgage, it is wise to choose a fixed mortgage with predictable payments over a specific period. However, if you can handle the fluctuations of a variable-rate mortgage, it may save you money in the long run. Alternatively, you can opt for a variable rate but make payments based on what you would have paid with a fixed rate.

8. How much will my mortgage payments be?

Your monthly mortgage payment depends on various factors including your mortgage size, mortgage default insurance, mortgage amortization, interest rate, and payment frequency. To explore different mortgage and payment scenarios, you can use the My Mortgage Toolbox app (https://dlcapp.ca/app/yenchifrank-feng) available on the Apple App Store and Google Play. It offers a range of calculators to assist you in making informed decisions.

9. What amortization will work best for me?

The standard amortization period for a mortgage is typically 25 years, but you have the flexibility to choose a shorter or longer timeframe. Opting for a shorter amortization period has several benefits. Firstly, it allows you to become mortgage-free sooner. Additionally, paying off your mortgage in a shorter time reduces the overall interest you’ll pay. You also build equity in your home faster with a shorter amortization. However, keep in mind that choosing a shorter amortization means higher monthly payments and fewer total payments. If your income is irregular or you’re a first-time homebuyer with a large mortgage, a shorter amortization period may not be the best option as it can increase your regular payment amount and impact your cash flow.

10. How can I maximize my mortgage payments and own my home sooner?

Mortgage products typically offer prepayment privileges, allowing you to pay up to 20% of the principal per year, reducing both the amortization period and the overall mortgage length. Another effective method to accelerate mortgage payoff is by choosing accelerated bi-weekly payments instead of semi-monthly payments. With 26 payments per year, accelerated bi-weekly payments not only help pay off the mortgage faster but also result in significant long-term savings. Additionally, many lenders allow lump-sum payments of up to 20% of the original borrowed amount each year, providing further flexibility in reducing your mortgage balance.

11. Can I make lump-sum or other prepayments on my mortgage, or will I be penalized?

Before finalizing your mortgage, it is crucial to review the prepayment conditions specific to your lender and mortgage product. While many lenders permit lump-sum payments and increased mortgage payments up to a certain limit per year, “no frills” mortgage products with the lowest rates typically do not allow prepayments. Additionally, some lenders may restrict lump-sum payments to the mortgage’s anniversary date, while others allow spreading them throughout the year, up to the maximum allowed yearly amount.

12. If I have mortgage default insurance, do I need mortgage life insurance?

Yes. Mortgage life insurance is a life insurance policy on a homeowner, which will allow your family or dependents to pay off the mortgage on the home should something tragic happen to you. Mortgage default insurance is something lenders require you to purchase to cover their own assets if you have less than a 20% down payment. Mortgage life insurance is meant to protect the family of a homeowner and not the mortgage lender itself.

13. Is my mortgage portable?

Fixed-rate products usually have a portability option as lenders utilize a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property, and the new balance is calculated using the current rate. With variable-rate mortgages, however, porting is usually not available. This means that when breaking your existing mortgage, a three-month interest penalty will be charged. This charge may or may not be reimbursed with your new mortgage. While porting typically ensures no penalty will be charged when you sell your existing property and buy a new one, it’s best to check with your mortgage professional for specific conditions before making any changes.

14. If I want to move before my mortgage term is up, what are my options?

This will depend greatly on your particular lender and the type of mortgage you have. While fixed mortgages are often portable, variable are not. Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day, while others offer extended periods. As long as there is not too much time between the sale of your existing home and the purchase of the new home, as a rule of thumb most lenders will allow you to port the mortgage. In other words, you keep your existing mortgage and add the extra funds you need to buy the new house on top. The interest rate is a blend between your existing mortgage rate and the current rate at the time you require the extra money.

15. How much will I have to pay for closing costs?

As a general rule of thumb, it is recommended that you put aside at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs such as: property transfer taxes, lawyer/notary fee, survey costs, appraisal fee, title insurance, and a home inspection.

16. How do I ensure I get the best mortgage product and rate upon renewal at the end of my term?

The best way to ensure you receive the best mortgage product and rate at renewal is to enlist your mortgage professional to review your current mortgage product, financial situation and shop the market for you. A lot can change over a single mortgage term, and you can miss out on a lot of savings and options if you simply sign a renewal with your existing lender without consulting your mortgage professional.

Still have more questions? Reach out to your mortgage expert for the advice and expertise to ensure you get the best mortgage questions answered.

While the mortgage process can be daunting, we have broken it down into five easy steps to help you get started!

1. Options: Your mortgage professional has access to 90+ lenders with dozens of solutions to suit your mortgage needs. During our initial consultation, your mortgage professional will review your situation and provide an overview of mortgage options that are best suited to your needs. From there, you can work together to complete your mortgage application and obtain financing.

2. Collection: When it comes to a mortgage application, you’re required to submit the following items to the lender: credit report, agreement of purchase and sale (or estimated mortgage amount if you are refinancing), proof of income/employment, down payment amount, identification, and solicitor information. Your mortgage professional is able to assist you with preparing, gathering, and sending this documentation.

3. Submission: Your mortgage professional will submit your mortgage application to the appropriate lender with the mortgage product that best suits your needs. As they work with dozens of lenders, from banks to credit unions to trusts and private options, they can leverage their negotiating power to get you the best mortgage product.

4. Approval: Once you have been approved for your mortgage, you will be required to sign. You will obtain approval documents including payment details, mortgage terms and privileges, and pre-funding conditions (if applicable). If the closing date is more than 30 days away, your mortgage professional can also hold the approval documents and monitor the market. When you reach four weeks away from closing, they can help finalize the approval documentation.

5. Closing: This is the final step to homeownership, where your signed documents are submitted to the lender with all supporting information. The lender will review and approve the final documents and send their instruction package to your lawyer. When you meet with your lawyer, they will require final identification and signatures and review your closing costs. On the closing day, the mortgage funds will be transferred to your lawyer to close the sale.

If you are looking to purchase your first home, or a new home, in the coming months, reach out to a your mortgage expert for the advice and expertise to ensure you get the best mortgage product for YOU.

When it comes to mortgages, it can be easy to get overwhelmed by the sheer number of options. Below are some of the mortgage details that you should understand to ensure that you are getting the best mortgage for YOU:

Interest Rate Type

Interest rate is one of the major components to your mortgage, and it is important to decide whether you want a fixed-rate, variable-rate, or protected (capped) variable-rate mortgage.

A fixed-rate mortgage is ideal for new home owners or those on a fixed income, who are more comfortable with a stable monthly payment.

A variable-rate mortgage is ideal for individuals who have room in their budget and want to take advantage of potential interest rate drops – keep in mind, with this mortgage you pay more if the rates go up!

Lastly, the protected (capped) variable-rate mortgage operates similarly to a variable-rate, except with a maximum (or capped) rate, allowing you to take advantage of interest rate decreases while never paying above a set amount should the rates rise.

Amortization

This is the life of your mortgage and is typically a 25-year period, whereby you would pay off the entirety of the loan. You can choose a shorter term, which would result in higher payments but allow you to pay less interest over the lifetime of your mortgage and be mortgage-free faster! Or, you can opt for a longer amortization period, which allows for smaller monthly payments.

Payment Schedule

This is the frequency that you make mortgage payments and ranges from monthly to bi-monthly, bi-weekly, accelerated bi-weekly, or even weekly payments. There are many great calculators on My Mortgage Toolbox app (available through Google Play and the Apple App Store) that can help you calculate and compare these payment schedules to see what works best for you.

Mortgage Term

The standard mortgage term is 5 years and refers to the length of time for which options are chosen and agreed upon, such as the interest rate. When the term is up, you have the ability to renegotiate your mortgage at the interest rate of that time and choose the same or different options.

Open vs. Closed

Open mortgages give you the option to increase mortgage payments or make lump sum deposits on your loan. A closed mortgage does not allow additional payments without penalties.

High Ratio vs. Conventional

A conventional mortgage is where you put the standard 20% down on your home. However, as not everyone is able to do this, many buyers will end up with a high-ratio mortgage product. High-ratio mortgages need to be insured due to financial institutions only being allowed to lend up to 80 percent of the home’s purchase price WITHOUT mortgage default insurance. Therefore, if you choose a high-ratio mortgage over a conventional one, you will pay a monthly insurance premium.

Contact me today to get started on your home buying journey with expert advice and solutions to suit YOUR unique needs!

Approximately 20% of Canadians are self-employed, making this an important segment in the mortgage and financing space. When it comes to self-employed individuals seeking a mortgage, there are some key things to note as this process can differ from the standard mortgage.

In order to obtain a mortgage as a self-employed individual, most lenders require personal tax Notices of Assessment and respective T1 general forms to be included with the mortgage application for the previous two years. Typically, individuals who can provide this proof of income – and have acceptable income levels – have little issue obtaining a mortgage product and rates available to the traditional borrower.

Self-Employed Categories

For those self-employed individuals who cannot provide the Revenue Canada documents, you will be required to put down 20% and may have higher interest rates. If you can provide the tax documents but don’t have enough stated income due to write-offs, then you have to put down a minimum of 10% with standard interest rates. If you are able to put less than a 20% down payment when relying on stated income, the default insurance premiums are higher. If you can provide the tax documents and have a high enough income, then there are no restrictions.

Documentation Requirements

For self-employed individuals, the following documents must be provided, in addition to your standard documentation:

• Two years of T1 general forms.
• For incorporated businesses, two years of accountant-prepared financial statements (Income Statement and Balance Sheet).
• Two most recent years of Personal NOAs (Notice of Assessments) and tax returns.
• Potentially 6-12 months of business bank statements.
• Confirmation that HST/Source Deductions are current.

Income Calculation

When it comes to calculating income for a self-employed application, lenders will either take an average of two years’ income or your most recent annual income if it’s lower.

If you have an incorporated business, some lenders may be able to use the most recent two years’ financials (prepared by the accountant) to determine your annual income.

If you’re self-employed and looking to qualify for a mortgage, or simply have one, reach out to your mortgage professional today! I can work with you to ensure you have the necessary documentation, discuss your options, and obtain a pre-approval to help you understand how much you qualify for.

In Budget 2022, the Canadian government introduced measures to make housing more affordable. Among these initiatives is a new savings account called the Tax-Free First Home Savings Account. This account is designed specifically to help first-time homebuyers save for a down payment on a home. If you’re dreaming of owning your own home, keep reading to find out how this account works and how it can help you achieve your goals.

What is the Tax-Free First Home Savings Account?

The Tax-Free First Home Savings Account (FHSA) is a registered savings account that would allow prospective Canadian first-time homebuyers over the age of 18 the ability to save a maximum of $40,000 tax-free, with a contribution limit of $8,000 per year. The account will become available to Canadians April 1^st, 2023. An FHSA has similarities to existing registered accounts like the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) – it’s almost like getting the best of both account types without any of the drawbacks. For example, like an RRSP, contributions to an FHSA would be tax-deductible, and like a TFSA, qualifying withdrawals from the FHSA would be non-taxable. As the government describes it, “tax-free in, tax-free out”.

Who can open a Tax-Free First Home Savings Account?

To be eligible for the FHSA, you would need to meet these criteria:

• Canadian resident
• 18 years of age or older
• Must be a first-time home buyer

Who is considered a “first-time homebuyer”?

To be eligible for this account, the Canadian government defines a first-time homebuyer as someone who has not owned a home they lived in during the previous calendar year or the four calendar years before opening the account.

Contributing to a Tax-Free First Home Savings Account

As we mentioned before, the Tax-Free First Home Savings Account has an annual contribution limit of $8,000 and a lifetime contribution limit of $40,000. You can open multiple FHSAs in different account types such as high-interest savings accounts, guaranteed investment certificates (GICs), mutual funds, or bonds, but remember that the total amount contributed cannot exceed the annual or lifetime contribution limits. Any overcontributions to an FHSA will be subject to a monthly tax rate of 1% on the highest amount of the overcontribution for the month.

Withdrawing Funds from a Tax-Free First Home Savings Account

To potential homeowners who have been saving for years, withdrawing from a Tax-Free First Home Savings Account is an eagerly awaited moment. To ensure that your FHSA withdrawal is not subject to taxes, it must meet the following criteria:

• You must be a first-time home buyer at the time the withdrawal is made or have moved into your first home in the last 30 days
• The home must be in Canada
• You must have a written agreement to buy or build a qualifying home before October 1^st of the year following the withdrawal
• The qualifying home must be your principal place of residence within one year of buying or building it

Is withdrawing from an FHSA the same as a Home Buyers’ Plan (HBP) withdrawal from an RRSP?

While both withdrawals can be used for your first home, there are also some differences. If you’re already contributing to an RRSP, you can withdraw up to $35,000 under the Home Buyers’ Plan. Since the primary goal of an RRSP is to help Canadians save for their retirement, you will have to repay the withdrawal amount within 15 years, otherwise, the withdrawal amount will be added to your taxable income. An FHSA withdrawal, on the other hand, does not need to be paid back.

Tax-Free First Home Savings Account Guidelines and Timelines

One unique trait of the FHSA is that it can only be open for a maximum of 15 years or up until the account holder turns 71 years old. After that point, if the funds haven’t been used, account holders will have two options:

1. Tax-free option: transfer money to an RRSP or Registered Retirement Income Fund (RRIF)
2. Taxable option: withdraw funds to a non-registered account

Maximize Your Homebuying Potential

In addition to improving your credit, and creating a practical budget, saving a solid down payment is an integral step on the way to buying your first home. The introduction of the Tax-Free First Home Savings Account is a great asset that future homeowners can use alongside existing registered savings accounts like an RRSP and TFSA and government programs such as the First Time Home Buyers’ Plan or the First-Time Home Buyer Incentive.

Buying a home is an exciting experience for anyone, and it is even more of a milestone when you are doing it by yourself. While it can be easier to tailor your mortgage and home search to your needs, it can be somewhat more stressful handling the purchase of a home on your own.

In addition to using a mortgage expert and having a trusted realtor, here are some other tips that can help improve your homebuying experience:

1. Be aware of your financial history: Understanding your credit score and financial history can improve your qualification potential. If your credit score is lower than 680, or lower than you’d like for what you are trying to qualify for, you can take steps to improve this before seeking a mortgage and get better results.

2. Ramp up your savings: While a mortgage will cover a large chunk of your home purchase, you are also required to have a down payment. Additionally, you need to consider closing costs (1.5-4%) of the purchase price, as well as ongoing maintenance and costs for your new home (repairs, utilities, property taxes). It is essential to determine your budget so you are aware of what you can afford monthly. Before you start shopping, it is also an excellent time to start ramping up your savings account so you can put more down and potentially reduce the overall mortgage.

3. Study the marketplace: One of the most critical aspects of homeownership is understanding what you can afford and where you want to live. These two key components can help you determine your budget and the areas you should be looking for a home, as well as what type of home size, amenities, etc. Understanding what is available can provide you with more information and help you fine-tune your shopping list.

4. Be flexible when possible and firm when not: While shopping for a home on your own can be much easier as you are only concerned about your needs, it’s still important to be flexible. While it is easier to find a home that fits just ‘you,’ keeping your options open can also have its benefits. Of course, if there are things you cannot live without or a location you need to be in, it is essential to be firm about those things as well. Creating a list of wants and needs can help you determine where there is room to be flexible and where there isn’t.

5. Consider your present and future needs: While you are shopping for your new home for today, you will also want to consider what your life might look like in the future. What are you doing five years from now? Ten years? Do you want to start a family or have children? Do you plan on changing jobs or requiring a move in a few years? All these things are essential to be aware of so you can make the best choice for you today and ensure that you’re considering your future needs.

6. Protect Yourself: Finally, while you may not be purchasing your current home with a partner, it is essential to leave room for this in the future to ensure that you and your home are protected. If another individual move into your home down the line, you could become common law, which could cause complications. Having an honest conversation about expectations and responsibilities can help, as well as writing up a document for both parties to sign, indicating these responsibilities as well as outlining the investment made by the original owner and new partner.

If you are a single homeowner looking to make a purchase but are unsure where to start, do not hesitate to reach out to a mortgage expert. As an expert in mortgages, they have experience in all types of situations and purchases, and the knowledge to walk you through the process and ensure you get the best home and mortgage for YOU.