How to Choose the Right Mortgage Broker

In 2016, 57 percent of first-time home buyers in Canada got their mortgages from a broker.

The staggering figure, which was published in a recent survey by the Canada Mortgage and Housing Corporation, is indicative of a broader trend: more and more Canadians are choosing brokers over banks when it comes to purchasing or refinancing their mortgages.

People are choosing brokers over banks because brokers often can give personalized advice on a mortgage and shop around between lenders to find better deals.

This flexibility can really make life easier and help cut costs, but here’s the catch about brokers: it’s tough to find the right person for the job.

The quality of your broker will help make sure funds are ready when the deal needs to complete and determine your financial situation for the next few years, so if you’re looking to buy a new home it’s important that you find a broker who’s both qualified and trustworthy.

What Does a Good Mortgage Broker Do?

A good broker will help you figure out how much you can truly afford, determine what the best mortgage product is for you, and shop around for options that help you save money.

But their job doesn’t end there.

Your broker should also help you after review your mortgage a few times a year to see how you can pay it off faster, whether it’s still the right product for you, and if it’s still competitive.

Here are a few characteristics of good mortgage brokers:

  • They’re always one step ahead of you
  • They make your interests theirs
  • They have good communication skills
  • They deliver on their promises
  • They have a positive attitude
  • They listen to you and can give good advice based on your desires
  • They stay in touch with you after you sign a contract

How to Pick the Right Mortage Broker

Choosing the right mortgage broker is easier using these steps:

Phase 1: Make a  List

Write a list with the names of brokers you may know, you find and are referred to you.  If you have co-workers or friends who have bought a home recently; or renewed their mortgage; ask how they liked working with their broker and who they were.  

Ask your BC Notary, lawyer or Realtor for a referral for people they have worked with and they should be able to tell you fairly quickly who they know, like and trust.  

You can also search online to find mortgage brokers in your area.  We know a number of brokers and would be happy to provide some names of competent professionals to help you find the right fit.

Phase 2: Research

Before you even start talking to potential mortgage brokers, it’s important that you do some preliminary research.  

Search online. A quick Google search will give you the names of mortgage brokers that operate in your area. 

Many of these brokers will have websites and online profiles. High profile ones may even have peer-reviews posted websites like Yelp.

Visit their websites, check them out on LinkedIn, and read reviews. Doing this will give you insight into the the broker’s past work and reputation. 

While you’re at it, do a quick search on the Canadian Association of Accredited Mortgage Professionals’ website. The organization also has an online directory that can help you make sure that the broker is accredited.

Ask around. Once you’ve created a shortlist of potential mortgage brokers based on your research, start asking around for reviews and recommendations.

Talk to friends, colleagues and neighbours, and see if they have worked with anyone on your list, or if they have anyone else to recommend. If someone has had anything less than a good experience with an broker, immediately cross them off the list.

Reach out. Once you have a list of potential mortgage brokers, it’s time to contact them. See what kind of vibe you get and ask if they have references from previous clients. If you get a good vibe, keep them on the list, and coordinate a time to meet them. If you don’t get a good vibe, cross them off immediately.

Phase 3: Interview, Interview, Interview

By the end of the research phase, your list of potential mortgage brokers should have at least three strong candidates. The next step is to meet up with them.

These interviews may seem intimidating at first, but remember: You’re in control. They have to impress you, not the other way around. 

These interviews are important to figure out if the broker has the perfect balance between credentials and chemistry.

During each interview, make sure you ask yourself if this is a person you like and trust–and don’t forget to ask them the following four questions…

Four Key Questions to Ask a Potential Mortgage Broker

4 questions to ask a mortgage broker

1. How long have you been in business?

While experience may not necessarily equate good service, it is important to know how long a mortgage broker has been in business. 

Mortgage brokers with experience will generally have cultivated relationships with more lenders. This means that they will be able to shop around for deals from a wider pool of lenders.

2. How many lenders do you deal with?

Regardless of experience, good brokers deal with many lenders.

High-volume brokers can negotiate better deals, helping you find something that best suits your needs. Low-volume brokers may have less options.

3. What’s the application process like?

Many brokers offer online platforms that help you compare costs and easily apply for loans.

Be sure to ask about average closing times, specific requirements (credit score, down payment, debt-to-income ratio, etc.), and all documents you will need throughout the entire process.  

4. What will my mortgage look like?

Not all mortgages are the same so find the one that works for you.  Make sure to consider things like prepayment privileges, porting, and assuming mortgages as well as whether to go with fixed or variable rates.  Is CMHC Insurance a consideration or can I have my property taxes collected with my mortgage payment?  

Discussing these topics and asking broker’s opinion will help you get to know then; educate you and also show them you know what type of questions to ask regarding your mortgage.

What now?

Now that you know how to choose a mortgage broker, it’s time to go out there and start your search. 

Good luck and have fun!  Let me know if you have any questions or would like a referral.

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What Every Home Buyer Must Know About Vancouver’s Empty Home Tax

If you are buying a house the Vancouver’s Empty Home Tax may unexpectedly apply to you.

Last year after the Vancouver City Council passed the controversial Empty Home Tax By-Law, dozens of homeowners and buyers have come to my office asking about the whether it applied to them.

And the answer is not always clear, which can be particularly unsettling at the time of a real estate transfer. The new home buyer may be unknowingly responsible for paying a $10,000+ tax up to 2 years into the future. Ouch!

In this guide, we explain the Empty Home Tax in simple English, so that all homeowners and buyers understand what it is and whether it applies to them.

We also outline a solution that ensures no home buyer is caught with an unexpected tax up to 2 years after they purchased a house.

What is the Empty Home Tax?

The Empty Home Tax (sometimes known as the Vacancy Tax) applies to residential properties within the City of Vancouver that:

  • Have been vacant for six or more months during a calendar year, or;
  • Has not been rented out for 30 or more consecutive days).

The tax was set up for two reasons:

  1. To make empty or under-utilized properties available for long-term rental, and
  2. To help relieve pressure on Vancouver’s rental housing market, given low rental vacancy rates and high rental costs. 

The bylaw was passed tax in December of 2016, in a context in which rental prices were soaring, and more than 25,000 properties within the city remained empty or under-occupied. 

The tax looks to incentivize rentals, and the net revenues from the Empty Homes Tax will be reinvested into affordable housing initiatives in order to continue providing solutions to Vancouver’s housing affordability crisis.

The rate of the Empty Home Tax is 1% of a property’s assessed taxable value. This means that for every $1 million dollars of value, the tax will be $10,000.

The Empty Home Tax will be applied annually, with the first tax year beginning on January 1, 2017. It will be calculated each year based on the property’s assessed taxable value in the previous tax year.

The types of Vancouver properties the empty home tax applies to

Who Does The Empty Homes Tax Apply To?

Any non-principal residences within the City of Vancouver that is left empty for six months of the year or longer will have to pay the Empty Homes Tax.

If your property is located in a municipality that does not fall within the city, such as the University Endowment Lands, Burnaby or Surrey, the tax will not apply to you.

According to the City of Vancouver, this will only apply to a category of homes known as Class 1 Residential, which includes “single-family residences, multi-family residences, duplexes, apartments, condominiums, nursing homes, seasonal dwellings, manufactured homes, some vacant land, farm buildings and daycare facilities.”

If your property is within the boundaries of the city of Vancouver but is not solely classed as a Class 1 Residential property, the Empty Homes Tax will not apply and you are not required to make an annual property status declaration.

Some exceptions to the tax exist. They include but are not limited to properties that:

  • Were not principal residences, but were occupied for at least 180 days of the year because you worked in the city of Vancouver.
  • The owner or the tenant was receiving long-term, inpatient, medical, or supportive care.
  • The registered owner was deceased and a grant of probate or administration of the estate was pending.
  • The title was transferred during the year
  • Were undergoing redevelopment or major renovations where permits:
    had been issued and were being carried out diligently and without delay, or
    were under review for redevelopment of vacant land or the conservation of heritage property 
  • Are under a court order, court proceedings, or an order of a governmental authority prohibiting occupancy.

The types of buildings being assessed

How Will The Tax Be Implemented?

Every year homeowners in the City of Vancouver will need to make an annual property status declaration. This will include the valuation of the property and will state whether or not the property was vacant for six months or more during the previous fiscal year.

The declaration will then be used to determine whether or not the property will be taxed.

All declarations for the 2017 fiscal year must be made between December 1, 2017, and February 2, 2018. Failure to do so will lead to the imposition of the tax, as well as a fine that may reach up to $10,000 per day of non-compliance. 

False reports can also lead to a $10,000 fine for homeowners.

According to a report published by Global News earlier this year, a City of Vancouver spokesperson said that “property status declarations will be subject to a rigorous audit process, in line with best practices for provincial and federal tax programs.”

This means that homeowners should definitely comply with the law, and be truthful in their declarations.

Cost of empty homes tax

Will Unpaid Taxes Be Transferred to a New Buyer? 

Buyers may have to pay taxes owed on a property after they purchase it.

According to the bylaw, if you purchase or inherit a property that has unpaid Empty Homes Tax, you will not have to pay the one percent tax for that fiscal year.  

If it is found that it should have applied to previous years; that tax will be added to the property tax account associated with that property and “run with the land”. 

However, you’ll still have to present an annual property status declaration.

Will the empty home tax be transferred

The Solution We’ve Found To The Potential Tax Problem

An Audit for the previous year could take place 1-2 years after your home purchase completes.  

Even if you know that the Seller lived there, it may be impossible to find them to sign an affidavit and provide the evidence required. This could be problematic.

We have seen several times were relations between buyer and seller are strained during the property transaction and negotiations.  How do you know they will cooperate with an audit?

As BC Notaries we are asked to provide our final report that the buyer owns the property free and clear of previous incumbents.  This is a new challenge in how we can now do that under the cloud of empty homes tax as the audit time is in the future and the tax liability stays with the homeowner.

 The penalty goes with to the individual (previous owner) but the tax if unpaid goes with the land.

Neither the City of Vancouver nor the real estate (salesperson and legal) community has done a great job at finding a convention on how we can deal with this. With every real estate transaction, there is potential that people are arguing about the Empty Homes Tax.  

This is an evolving area without a set generally accepted legal industry practice.  To protect buyer’s, we have a few new steps for City of Vancouver Purchasers.

how home buyers can protect themselves

1. Confirm Tax Status

Ensure that declarations are made and tax paid or held back until declaration made.

2. Protect The Buyer and Lender From A Future Tax

Where the contract is silent on who is going to deal with the issue about Empty Homes Tax, we need to find something that has certainty.

We have worked with the title insurance companies to confirm protection and most title insurance policies will protect buyers and lenders from the result of an unfavourable audit for previous year’s declarations.

The cost of title insurance depends on the price of the property. Here is a Policy Calculator for Stewart Title. Cost and coverage between title insurance companies are about the same.  

While title insurance is an increased cost, we can find something that delivers certainty as well as providing protection on several other areas as well.  We urge all buyers to now purchase “owner policy” title insurance.

Many Lenders already insist on getting title insurance to cover the mortgage.

The Empty Homes Tax isn’t mentioned in the contracts of purchase and we receive.  We can’t have variables.  We urge our purchaser’s to follow our advice and purchase owner’s policy title insurance.

Purchasers do have a choice and our clients can refuse to buy title insurance. In such cases, we will provide a Waiver if to confirm the risk lies solely with the purchaser. They agree we accept no liability around unpaid taxes or risks that would have been covered by title insurance.

refuse title insurance

Have any questions?

If you still have questions regarding the Empty Home Tax and for more information about buying real estate in the City of Vancouver, please call or email us.  We are happy to assist you directly or to provide a referral to a notary or lawyer in your area.

David Watts, BC Notary
Clinton Lee, BC Notary
David Watts Notary Corporation
Phone: 604 685 7786

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[Infographic] The Home Buyer’s Quick Guide To Vancouver’s Empty Home Tax

After the Vancouver City Council passed the controversial Empty Home Tax By-Law, dozens of homeowners and buyers have come to my office asking about the whether it applied to them.

We’ve created this handy infographic that will help explain the Empty Home Tax.

It also details how to overcome the biggest risk to home buyers – getting hit with a $10,000+ tax from before they owned the property.

For a more detailed explanation of the Empty Home Tax, see this post.

If you find this infographic helpful, you can use it on your site. See below for full permission details.

The Home Buyer's Quick Guide To Vancouver's Empty Home Tax

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What Are Mortgage Penalties

What Are Mortgage Penalties? (And How to Avoid Paying Them)

What happens if you want to sell your home before the end of a fixed year mortgage?

When you got your mortgage you shopped around for different options, eventually found a good deal, and likely settled for a five-year mortgage, with a fixed or variable rate.

Then after three years, you decide to sell your property.

You still have two years on your term. This means you’ll have to break your mortgage contract in order to sell.

You call the bank to find out how much it will cost. When the voice on the other side of the phone tells you the figure, you can’t believe what you are hearing.

You put down the phone in a hurry, and ask yourself the following question:

Why Is It So Expensive to Prepay Your Mortgage?

You’d think that lenders would love you for paying out a loan early—but that isn’t the case.

Lenders don’t want you to pay your loan early because they want the interest payments.

Mortgage contracts include specific language regarding the penalties you need to pay if you want to prepay your mortgage.

Whether pay the whole mortgage off in cash, or by switching to a new mortgage, you’ll most likely have to pay these (often) astronomical penalties.

That’s why, before you sign a new mortgage contract, you’ll want to know exactly how much these penalties are.

Lenders want your interest

How Much Will It Cost to Break My Mortgage?

The amount of money you’ll pay in penalties for breaking your mortgage will depend on the type of mortgage contract you have.

Variable rate mortgage

Variable rate mortgages are mortgages in which the interest rate is adjusted periodically to reflect market conditions.

If you have a variable rate mortgage, the penalty you’ll have to pay for breaking your mortgage is of three months of interest on your current balance.

In other words, if the current balance on your loan is of $100,000 and the interest rate on your mortgage is 2.79%, you’ll be paying $697.50 in penalty.

Here is how we got those numbers:  

Interest rate x current balance x three-months = penalty
or
.0279 x 100,000 x (3/12) = $697.50

Fixed Rate Mortgage

A fixed rate mortgage is a mortgage in which interest rates and payments are fixed for the duration of the term.

This type of mortgage provides monthly financial stability, but calculating the penalty for breaking your fixed rate mortgage is complicated.

The general rule of thumb in these cases is that when you break a fixed rate mortgage you will pay whichever is greatest between the three month interest or the interest rate differential.

How to Figure Out Your Penalty

First, calculate your three month interest rate using the same equation as above. Here’s what that would look like using the example above.  

 

Interest rate x current balance x three-months = penalty

Then, figure out what your interest rate differential (IRD) is.

For this, you’ll need to know the following four things: the current balance on your mortgage, your original rate, the rate you can get now and the remaining number of months in your mortgage term. This information can normally be found on your online banking profile.

Using the same example from above, let’s assume that the current balance on your mortgage is $100,000, your original interest rate was 2.79%, the current rate is 2.59%, and you have two years (24 months) remaining in your mortgage term. In this case, your interest rate differential is $400.

Here’s how we got this number:

(Contract rate – Current market rate) x Current balance x Remainder of contract = IRD
or
(.0279-.0275) x 100,000 x (24/12) = $400

In this example, because the three month interest ($697.50) is higher than the IRD ($400), your penalty will be of three months interest rate. In many cases, however, your IRD will be much higher than the three month interest.

Many times penalties are in the thousands or tens of thousands of dollars, meaning that you may need to reconsider whether or not to break your mortgage.

Also, some lending institutions may use different methods to calculate your interest rate differential, including variables like discounts and advances. Make sure you ask your lending institution how they calculate IRD.

Different types of mortgages

How To Figure Out Your Penalty Without Math

First, you’ll need to get the following information:

  • When you mortgage started
  • Whether it’s variable or fixed
  • The term on your mortgage
  • The remaining balance
  • Your existing interest rate

Next, go to the Penalty Calculator on Ratehub.ca and fill out the information about your mortgage.

An example is a 3 year mortgage for $100,000 with HSBC with a 2.79% interest rate would have a $75 penalty on a variable mortgage, but a $3175 on a fixed rate. The same figures with CIBC is estimated about $875 on variable and $3875 on fixed rate.

It shows that rates are different for every bank and mortgage.

Is There Any Way I Can Avoid the Prepayment Penalty?

Here are a few things you can do to avoid paying astronomical prepayment penalties.

1. Review Your Contract Before You Sign It

Your mortgage will most likely be the most complicated document you ever sign. That’s why it’s important that you review your contract thoroughly before signing it. This includes looking specifically at prepayment penalties.

Get some help with this from an expert, and make sure you know exactly what you are signing.

2. Explore Prepayment Clauses

Some mortgages include clauses that allow you to pre-pay up to 20% of your mortgage balance per calendar year without a penalty. If you have calculated your penalty and figure out it is going to be astronomical, you can pay down up to 20% of your mortgage, and incur the penalties on the reduced balance.

3. Port Your Mortgage

If you’re looking to buy a new property, one of the ways to avoid paying a prepayment property is to port your mortgage. This means taking your existing mortgage—with its current rate and terms—and transferring it from one property to another. This can only be done if you’re buying a new property at the same time as you are selling your old one, and needs to be approved by your lending institution.

4. Get Your Mortgage Assumed

If you are selling your house, this means transferring your mortgage to the buyer. Not all loans will allow you to do this (most won’t, in fact) but it could be an option if your contract allows it and your differential is very high. Ask an expert to look at your contract to make sure you qualify for this.

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7 Crucial Times You Need To Update Your Will

7 Crucial Times You Need To Update Your Will

When you have a will you are already the type of person who knows it’s never too early plan for the future.

You know that an accident might happen at any time. You know that unless you’re prepared, your loved ones may be left struggling to deal with your estate.

That’s why you got a will.

However, once a will is created, it’s not necessarily done for good.

Things change.

Your family may have changed. People may have passed away or moved on from your life.

Or your financial situation may have evolved.

We recommend that you review your will every three to five years.  If things in your life have changed, it may be a good time to update your will.

Here are 7 reasons why you should consider updating your will.

1. You’ve Had Children

Becoming a parent is one of the main reasons why people get a will in the first place.

A will can allow you to name a guardian for your children and help you provide for them financially if something happens to you.

If you wrote your will before becoming a parent, or if your family has grown to include more children, you should definitely consider updating your will.

Doing this will ensure that everyone is taken care of and that your estate is divided equally among your children.

2. You’ve Had Grandchildren

The arrival of a new grandchild is rarely met with the thought of immediate succession planning, but it’s important that you update your will whenever this happy event happens.

Many people like help grandchildren with the cost of education or buying a first home. Updating your will allows that each of your family is taken care of when you pass away. 

3. Someone In Your Family Passed Away

When you lose someone, especially an executor or a beneficiary, it’s time to update your will.

If your spouse passes away, you may need to update your will to reflect this. This change will ensure that you control how your estate gets divided among all the other beneficiaries to your will.  You should also review your previous “alternate” plans are now consistent with what you wish to be your primary plan.

4. You’re Separating And/Or Getting A Divorce

Without changing your will, you can subject your family to legal battles with an old spouse who is still your executor or beneficiary. This can make an already difficult time very stressful.

If you are in this situation, update your will immediately.

5. Changes To Your Executor

Wills usually name an executor who is responsible for carrying out the instructions laid out in the will.

This person is in charge of completing an inventory and valuation of all assets and debts. They also gather the names and addresses of all beneficiaries and next-of-kin, and wrap up your personal matters (among many others).

This person plays a central role in ensuring that your wishes are respected once you pass away. It’s important to make sure that they are still up for the task.

There are a number of reasons why you may need to update your will executor, including:

  • They have passed away.
  • They moved to a different country.
  • Your relationship has changed and it’s no longer appropriate.
  • Someone else is a better choice.

6. Your Financial Situation Has Changed

Changes in your financial situation are another good reason to update your will.

Regardless of whether these changes are positive or negative, they affect the way in which you want to divide your estate.

Positive changes may motivate you to include more people in your will, while negative changes may push you to prioritize.  

7. A Law Has Changed

Laws change all the time, and they may affect the validity of your will.

For example, a few ago the B.C. legislature amended the B.C. Wills, Estates and Succession Act (WESA), creating major changes in the ways in which wills were drafted and executed.

These changes may render your will invalid or alter the way it is interpreted. If your will is over two years old, you may need to have it updated.

Do You Need to Update Your Will?

If you think that it is time to update your will or want to find out how to proceed, speak to a BC Notary or a lawyer.

As you revise your succession plans, it’s important to get the right help to make sure that your new will meets all legal requirements.

BC Notaries and lawyers can also help you make sure that the will reflects exactly what you want to happen if something happens to you.

Get in touch if you have questions or need help with your will.

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