Mississauga Mortgage

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Good news for Mississauga property owners and indeed for all Canadian property owners.  Here is some of the benefits from the 2009 federal budget:

1. A $5,000 increase to the RRSP Home Buyers Plan.  This means first time home owners can now withdraw up to $25,000 from their RRSPs for a down payment; tax and interest free.
2. A $750 tax credit for first-time home buyers to help with closing costs, such as legal fees, disbursements and land transfer taxes.
3. A 15% tax credit of up to $1,350 on eligible home renovation expenses undertaken before 1 February 2010.
4. $300 million for Eco energy retrofit grants.
5. More “disclosures” for mortgage insurance designed to help consumers better understand the mortgage insurance transaction.

To get the full details please speak to your accountant or real estate solicitor.

As we mentioned in the previous blog, Joe & Mary have two obstacles that they have to overcome:
1) They will have to come up with equity to bring their mortgage below the maximum of 95% of the value of the property. (95% of $90,195 = $85,685.) However, their mortgage balance at renewal is $86,498, so they will have to pay in $86,498-$85,685 = $813 in equity to qualify for the mortgage.
2) Mortgage insurers such as CMHC and Genworth will not insure borrowers who have credit scores below 620. As I stated before, any mortgage that has a Loan to Value (LTV) higher than 80% is a high ratio mortgage and prime lenders will requre it to be insured with a mortgage insurer. Thus, if Joe & Mary, or one of them, have damaged their credit so that their credit scores are below 620 they will no longer qualify for the mortgage insurer’s requirements and thus neither for a mortgage.

From all of this then we can see the following:
1) If your mortgage renewal is four or five years from today then you should have enough equity in your home to qualify for a mortgage. If your mortgage renewal is in 2009 I suggest that you do some estimations of your property value and then calculate your Loan to Value to ensure that it is below 95%. If it is above 95% make sure that you have access to equity to make up the difference. You will be able to borrow the difference, but only if your debt service ratios are not too high.
2) More than equity in our homes it is essential that we know how our credit works, what damages it and what builds it. Your credit worthiness is more important that your income! (Have you though why?) Check equifax.ca regularly to see the status of your credit. Although the report that you as a consumer sees at Equifax does not disclose your actual credit score it gives enough information that will enable you to judge your credit worthiness. If Joe and Mary have damaged their credit scores then no prime lender will borrow to them and they will be in default of their mortgage.

Their are many things that I could not mention here, just because there is not enough space for it. Things like debt service ratios and various options available to you through a mortgage broker (that banks don’t offer) are very important, but we ran out of space. It would be my privilege to meet with anyone who requires more information and a solution.

Most people in the real estate business agree that it will take approxmately two years before the real estate market in the GTA and thus Mississauga will start to correct itself so we see positive gains again.  As I mentioned before, if your mortgage is low compared to the value of your home you should not have a problem getting a mortgage (assuming your credit worthiness is reasonable). 

However, what if you bought a home in 2007 with a down payment of less than 20%?  This would mean that you have an insured mortgage which your mortgage lender insured with one of Canada’s major mortgage insurers, CMHC, Genworth Financial or AIG.  Most people in Canada don’t understand the relationship that lenders have with the mortgage insurers, so maybe we will discuss this topic a little later. Suffice to say that if you have a down payment less than 20% you will have to qualify for both the lender’s and mortgage insurer’s requirements. This is because no mortgage lender will give you an insured mortgage loan without approval from the mortgage insurer. In a normal, improving housing market, the average borrower only insures his/her mortgage once. Why? The combination of the increased property value and their decreased mortgage balance over the mortgage term will cause them to have more than 20% equity in their home at the time of their mortgage renewal, thus no mortgage insurance is required. If a mortgage is not insured a mortgage lender can issue a mortgage approval solely on its own lending guidelines.

FYI: Equity = Property Value - Mortgage Balance

Let’s use an example of a home in a decreasing property value market, analyze the details and compile a checklist of what borrowers have to do to protect themselves from potentially loosing their homes when it comes to mortgage renewal time. We will do this in the next blog.