Mortgages & Life Insurance – how do they fit together?

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Congratulations!  You’ve just purchased the home of your dreams, and your advisor has secured you a great mortgage to make this dream a reality.

Now that you have a mortgage, it can make a lot of sense to insure it.  While owning a debt free home is a financial goal for many, putting plans in place to make sure your mortgage is paid off in the event of your death can be a critical part of estate and family planning.

A good rule of thumb to follow when searching for advice?  Ask an expert.  If the analysis points to a need for mortgage insurance, the question then becomes should you purchase the lending institution’s product that is offered with your mortgage, or should you explore term life insurance that is available from a life insurance advisor/company?

While both options have their pro’s and con’s, other than potentially more paperwork, the life insurance company option typically offers more overall value as outlined in the 8 key points below:

1 – Cost

Term life insurance available from a competitive life insurance company is usually less expensive than mortgage life insurance provided through the lender.  This is especially true if you qualify for non-smoker rates.

2 – Availability 

If you have some health issues, the lenders mortgage insurance may not be available to you.  This may not be the case with term life insurance where competitive underwriting and substandard insurance are more readily attainable.

3 – Declining coverage

Be aware that the death benefit of creditor/mortgage insurance declines as the mortgage is paid down.  Meanwhile, the premium paid or cost of the coverage remains the same.

With term life insurance the death benefit does not decline. You decide how much coverage you want to have.  This gives you the flexibility to reduce the amount of coverage and premium when the time is right for you.  Or keep it should another need arise or in the event you become uninsurable in the future.

4 – Portability  

Term Life insurance is not tied to the mortgage giving you flexibility to shift it from one property to the next without having to re-qualify and possibly pay higher rates.

5 – Flexibility

Unlike creditor/mortgage insurance, term life insurance can be for a higher amount than just the mortgage balance so you can protect family income needs and other obligations but pay only one cost-effective premium.

When you pay off your mortgage you will no longer be protected by creditor/mortgage insurance but term life insurance may continue. Also, unlike mortgage insurance, you are able to convert your term life insurance into permanent coverage without a medical.

6 – The beneficiary controls the death benefit

With creditor/mortgage insurance there is no choice in what happens to the money when you die.  The proceeds simply retire the balance owing on your mortgage and the policy cancels.

With term life insurance your beneficiary decides how to use the insurance proceeds. For example, if the mortgage carries a very low interest rate compared to available fixed income yields, it might be preferable to invest the insurance proceeds rather than to immediately pay off the mortgage.

7 – Can your claim be denied? 

Term life insurance is incontestable after two years except in the event of fraud.

Often creditor/mortgage insurance coverage is reviewed when a death claim is submitted.  Creditor/mortgage insurance allows for the denial of the claim in certain situations even after the coverage has been in effect beyond that 2 year period.

8 – Advice 

Your bank or mortgage broker can advise you on the best arrangement to fund your mortgage but advice on the most appropriate way to arrange your life insurance is best obtained from a qualified insurance advisor who can implement your life insurance coverage according to your overall requirements.

Your mortgage will probably represent the single largest debt (and asset) you will acquire. Making sure your mortgage doesn’t outlive you is the most prudent thing you can do for your family.

Please contact Outline Financial’s insurance group if you think it is time to review your current insurance protection or please feel free to forward this to someone you think may benefit from this information.

 

 

 

 

 

Copyright © 2017 Outline Financial & FSB – All Rights Reserved

2016 Year End TREB Stats and Commentary

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In an effort to assist our realtors and clients gain further insight into the Toronto real estate market, we have accumulated a database of TREB results on a monthly basis for the past 10 years (sales, avg price, new listings & active listings).  The attached pdf provides our month over month, year over year, and 5 and 10 year data comparisons.

Should you have any questions, comments, or suggestions regarding the attached, please contact a member of the team or send an email to hello@outline.ca

PDF Report-> 12-2016 – TREB Month of and Full Year Stats – Outline Financial (Formerly – The Lang Team)

Summary as follows*:

Month of December –

  • MLS Sales Volumes: up 8.6% vs. previous December, +23.8% vs. previous 5 year December average and +24.0% vs. previous 10 year December average
  • Average Price: up 20% vs. the previous December, +10.2% compounded annually over the past 5 Decembers, and +8.1% compounded annually over the past 10 Decembers.
  • New Listings: Down 11.7% vs. previous December, -5.9% vs. past 5 year December average and -11.3% vs. previous 10 year December average
  • Active Listings (standing supply available to realtors at the end of December): Down 48.1% vs. previous December, -58.3% vs. past 5 year December average and -62.5% vs. previous 10 year December average.

Full Year 2016 –

MLS Sales Volume: up 11.8% vs. previous year (new record at 113,133 sales for the year), +24% vs. previous 5-year average and +29% vs. previous 10-year average

  • Condos led the way with year over year sales volume growth of +21%.
  • A relative increase in 905 sales volume vs. 416 sales volume in the low-rise detached/semi/town-house category signaled a trend of people looking outside the Toronto core to find available low rise-supply at a lower price point.  (i.e., detached homes sales volume up 4% in 416, up 14% in 905).

MLS Average Price: up 17.3% vs. previous year ($730,000 average across 416/905 all property types).  Up 9.4% compounded annually over the past 5 years, up 7.6% compounded annually over the past 10 years.

  • Low rise leading the way with detached up 21% year over year, Semi-detached up 16% year over year, and Townhouses up 17% year over year.  Condos also showed resilience posting a +10% year over year average price growth.
    905 average prices rising slightly quicker than 416.  Still a significant gap in average price, but if trend continues, this gap will start closing over time.

New Listings: Down 3.5% vs. previous year, -0.6% vs. past 5 year average and -0.3% vs. previous 10 year average

  • While new listings were only down slightly vs. the historical average, the “velocity” of sales changes drastically.  Given significant pent up demand in the market, sales occur much faster resulting in more transaction each month, and a lower standing inventory of active listings.

Active Listings (standing supply available to realtors at the end of 2016): Down 30.3% vs. previous year, -37.5% vs. past 5-year average, and -43.6% vs. past 10-year average.

  • To put this in perspective, as at the end of Dec 2016, there were 4,746 active listings available on MLS.  Given the 10-year average of active listings is 12,672 at the same point in time, you can see we are in an extremely tight market with supply unable to keep up with demand pushing average price up quickly.
  • Please refer to “Demand Band” graph for visual representation of this demand/supply balance.

*Please note that all raw data is sourced from the monthly TREB Market Watch report. The Lang Team has compiled this data and created the attached graphs/charts, etc.  Should TREB make changes/revisions to their historical data, The Lang Team will update the files/graphs accordingly. If detailed change data is not available or immaterial, then the monthly figures presented will match to the TREB Market Watch report as originally published in any given month, and any year over year/monthly comparison figures will be based upon those numbers.

 

B.C. Premier Announces First Time Home Buyer Assistance

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This morning B.C. Premier Christy Clark announced the Home Owner Mortgage and Equity (HOME) Partnership program.

 

Through the B.C. HOME Partnership program, the Province is helping first-time home buyers by contributing to the amount they have already saved for a down payment with a loan that is interest-free and payment-free for the first five years.

Here is how it works:

  • The B.C. HOME Partnership program will match the buyer’s contribution up to 5% of the home’s purchase price, to a maximum purchase price of $750,000.
  • After five years, buyers can either repay their loan or enter into monthly payments at current interest rates.
  • Loans through the program become due after 25 years – the same length as most mortgages.

Eligibility

The B.C. Home Owner Mortgage and Equity (HOME) Partnership supports eligible first-time homebuyers. To qualify for the program, all individuals with a registered interest on title must reside in the home and:

  • Have been a Canadian citizen or permanent resident for at least five years and have resided in British Columbia for at least one year immediately preceeding the date of application
  • Be a first-time buyer who has not owned an interest in a residence anywhere in the world at any time
  • Use the property as their principal residence for the first five years
  • Purchase a home that has a purchase price price of $750,000 or less (excluding taxes and fees)
  • Obtain a high-ratio insured first mortgage on the property for at least 80% of the purchase price
  • Have a combined, gross household income of all individuals on title not exceeding $150,000
  • Have saved a down payment amount at least equal to the loan amount for which the buyer applied

How to apply

  • Step 1: Get preapproval for an insured first mortgage from your financial lending institution.
  • Step 2: Apply to BC Housing for the Home Owner Mortgage and Equity (HOME) partnership loan. If you are eligible, you will receive confirmation of eligibility and Homebuyer’s Kit which includes information for your Lender, Real Estate Agent, and Lawyer/Notary Public.
  • Step 3: Find your home and provide the details of your planned purchase to BC Housing for approval.

Applications for the program will be accepted starting Jan. 16, 2017, for purchases that will close on or after Feb. 15, 2017.

What information is needed to apply? Buyers can begin gathering the documents they’ll need to submit an online application.  Buyers will need:

  • Proof of status in Canada and residency in British Columbia
  • Secondary identification (must include your photo)
  • Proof of income and tax filings
  • Insured first mortgage pre-approval

 

Ontario Land Transfer Tax Changes – Will they benefit or cost you?

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If you are a first-time home buyer, Ontario has some good news to share; however, if you are a repeat buyer looking to spend over $2 million, things just became a little more expensive.

First the good news.  If you are a first-time home buyer, and your purchase closes on or after January 1, 2017, your Ontario Land Transfer Tax rebate increases from $2,000 to $4,000.  This means you will not pay any Ontario Land Transfer Tax on the first $368,00 of the purchase price which is an increase from the current limit of approximately $227,500.  While this change is not expected to materially increase peoples’ ability to afford a home, it does offer a nice boost at their time of closing.

On the other end of the spectrum, effective January 1, 2017 those that purchase for over $2 million will face an increase in their Ontario Land Transfer Tax costs as illustrated by the below chart (note: if a purchaser has entered an agreement of Purchase and Sale on or before November 14th,the current Ontario Land Transfer Tax Scale will still apply):

Current Ontario Land Transfer Tax Scale:

0.5% on the first $55,000 of the purchase price
Plus: 1.0% on the portion of the purchase price from $55,000 to $250,000
Plus: 1.5% on the portion of the purchase price from $250,000 to $400,000
Plus: 2.0% on the portion of the purchase price above $400,000

New Ontario Land Transfer Tax Scale (Effective January 1, 2017):

0.5% on the first $55,000 of the purchase price
Plus: 1.0% on the portion of the purchase price from $55,000 to $250,000
Plus: 1.5% on the portion of the purchase price from $250,000 to $400,000
Plus: 2.0% on the portion of the purchase price from $400,000 to $2,000,000
(new) Plus: 2.5% on the portion of the purchase price above $2,000,000

Examples:

A) First Time Home Buyer with a $500,000 Purchase Price

  • Current Ontario Land Transfer Tax = $4,475
  • Revised Ontario Land Transfer Tax After Jan 1, 2017 = $2,47
  • (note: if the buyer is also subject to the Toronto Land Transfer Tax, there would be an additional $2,000 in Toronto Land Transfer Tax)

B) Repeat Home Buyer with a $3,000,000 Purchase Price

  • Current Ontario Land Transfer Tax = $56,475
  • Revised Ontario Land Transfer Tax After Jan 1, 2017 = $61,475
  • (note: if buyer is also subject to the Toronto Land Transfer Tax, there would be an additional $55,725 in Toronto Land Transfer Tax)

In addition to the Ontario Land Transfer Tax, there is also the Toronto Land Transfer Tax to consider for those purchasing within the city of Toronto.  The current scale for Toronto Land Transfer tax is 0.5% on the first $55,000 of the purchase price; plus 1.0% on the portion of the purchase price from $55,000 to $400,000; plus 2.0% on the portion of the purchase price over $400,000.  The current rebate for first-time homebuyers is $3,725.

While nothing has changed with respect to the Toronto Land Transfer Tax, it is possible the municipality will review the current policy over the next number of months considering the recent Ontario changes.

We hope the above is helpful, and should you wish to discuss, please contact a member of The Lang Team by phone or email at any time.

Sincerely,

Outline Financial

 

CMHC Policy Revision: Get Ready for a Busy Weekend

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As you enter the weekend, we wanted to provide you with an important update to the stress test implementation guidelines that were initially announced by the Minister of Finance on October 3rd.  These changes to the initial announcement will likely result in a flood of buyers trying to beat the end of weekend deadline.

Our understanding of the revisions are as follows:

Updated guidance from CMHC and lenders state that the new stress test rules (i.e., having to qualify at the benchmark rate of 4.64% vs. the lower actual interest rate if you have less than a 20% down payment) will not apply to borrowers that enter into a legally binding agreement of purchase and sale before October 17th, 2016 regardless of the date the borrower applies for financing and/or the closing date of the purchase.

This is in contrast to the initial announcement that stated the submission for financing had to occur prior to October 17th and fund by March 1, 2017.

  • Key Impact #1 – if someone purchases a property before or including this weekend, the old lending rules will still apply — even if the borrower submits a financing application after the Oct 17th cut-off date.
  • Key Impact #2 – There was some uncertainty around new build purchases and if they have to register before March 1, 2017 to qualify under old lending guidelines.  This latest update clarifies the issue as old lending rules should apply if a legally binding purchase and sale agreement is in place prior to Oct 17th (regardless of the occupancy or registration date).

We hope the above is timely and helpful, and we are on stand by should you have clarification questions or would like to discuss.

Please find below a link to our previously issued updates on this topic:

Sincerely,

Outline Financial

 

How Could the Recent Mortgage Policy Changes Impact You?

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What a week — As noted in a previous post, the Minister of Finance caught everyone off guard earlier this week with what could be the most significant changes to the real estate and financing market we’ve seen yet.

While we will continue to post updates on our website, should you have any questions please call or email at any time as our team is on standby to discuss how these changes may impact you and/or any opportunities that may still be available given we are at the lowest interest rate point in history.

What has changed?

We have included a list of key articles at the bottom of this email that describe the changes in detail, but in summary:

  • October 17th – the maximum affordability for those with less than a 20% down payment will be reduced dramatically.  As an example, someone that could have qualified for an $800,000 purchase on October 16th could see that shrink to $650,000 on October 17th.
  • Impact for those with more than 20% down payment (or refinances) – While this area is still in flux, what we do know at this point is that the cost and restrictions for lenders to securitize their mortgages will be increasing – which will ultimately be reflected in higher rates and/or tighter mortgage restrictions for the consumer.

How Could This Impact You?

Depending on your current circumstances and/or goals, you may want to consider the following potential risks or opportunities:

  • Qualification Impact – The potential for higher rates (actual and/or qualifying), shorter amortizations, and tougher qualifying guidelines could make it increasingly difficult to purchase at desired price levels or access existing equity in your home.  If you have any plans to renovate, consolidate debts for a lower overall interest cost, purchase an investment property, or borrow to invest, it may be an opportune time to look at your options under existing lending rules.
  • Rate Impact – to put it bluntly, rates have never been lower.  Given the recently announced changes, combined with regulatory statements published earlier this year, we anticipate a steady upward pressure on mortgage rates over the coming weeks, months, and year.  If you were/are planning on accessing any additional equity from your home, or would like us to review any opportunity to restructure your current mortgage/rate, we are happy to assist.
  • Home Value Impact – consistently high demand and low supply has driven GTA average price increases into the double digits (on pace for 14%+ year over year growth in 2016).  The recent changes should slow the demand side of the equation (move some buyers down in price, or out of the market completely) resulting in potential buying opportunities for qualified borrowers.  On the flip side, if you are looking to sell or refinance, as the changes will take some time to work through the market this could signal a good opportunity to review your options.

Media Summary: 

October 2016

September 2016

July 2016

December 2015

Please contact our team if you have any questions, or would like any additional information.

Sincerely,

Outline Financial

 

Major Policy Change – Mortgage Qualification Guidelines

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While the details are still trickling in, The Minister of Finance potentially dropped a bombshell on the Toronto real estate market as of this morning.  While their press release was vague [click here], we understand the changes to be as follows:

Mortgage Qualification Policy Change:  Currently, if you select a 5-year fixed mortgage term, you would qualify based on your actual monthly mortgage payment (i.e., calculated on 5-year fixed rates in the low to mid 2% range).  Going forward, while your actual mortgage payment would still be based on your contract rate, you would need to qualify using a much higher monthly mortgage payment based on the Bank of Canada “stress-test” Benchmark Rate (currently 4.64%) — resulting in a significantly reduced maximum purchase price (refer to impact section below).

Implementation Dates: It is expected this change will be effective on October 17th for all those with less than 20% down.  We are awaiting additional details, but the change may also impact those with greater than 20% down given the banks/lenders use of portfolio insurance.  If that is indeed the case, it is expected that change may be implemented on November 30th.

Impact: While every case is different, we have included a sample max purchase price impact calculation for a 10% down buyer.  Please contact us if you would like us to run the numbers for any specific scenario:

Impact Example (Max Affordability):

Total household salaried income = $120,000
Down payment available = 10%
Mortgage Product Chosen = 5-year Fixed
Purchase Style / Location = Freehold / Toronto
Debts = limited debts (i.e., credit card, car, etc.)

Current Max Purchase Price = Approx. $800,000*
Max Purchase Price After Oct 17th = Approx. $640,000*
(Note: the above is for illustration only.  Please contact a member of The Lang Team to discuss)

Media Coverage:  While additional details are expected to be published throughout the week, we have included a few relevant articles that have come out in the media today.  We have also reached out the Department of Finance, lenders, and mortgage insurers directly and will pass along any relevant information as/when received.

Should you have any questions regarding the above, please contact any member of our team.

 

Our August 2016 TREB Stats and Commentary

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In an effort to assist our realtors and clients gain further insight into the Toronto real estate market, we have accumulated a database of TREB results on a monthly basis for the past 10 years (sales, avg price, new listings & active listings).  The attached document below provides our data based commentary on the month and year that was and projections/thoughts as we progress through 2015.

Should you have any questions, comments, or suggestions regarding the attached, please contact a member of the team or send an email to info@thelangteam.ca

Click here for – [The Lang Team – Aug 2016 TREB Stats/Commentary.pdf]

 

 

 

Housing demand set to grow for Millennials and Baby Boomers

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It’s estimated that 9.6 million baby boomers are in Canada today and they have long been the segment which garners the most attention.  There is, however, another demographic just as big than the Boomers: the “Millennials” ( or “Gen Y’s”).

This group has not been clearly defined yet, with no standard criteria for categorizing them.  They are born anywhere from the early 1980’s to the early 2000’s.  This age bracket has as many as 7 million to 9.1 million people living in Canada – a huge demographic with a huge influence on trends.

Millennial housing demand is growing as they look to buy their first homes, especially in Toronto and Vancouver. They have the potential to be the biggest home buying group in history — even bigger than their baby boomer parents.

According to CREA, the Baby Boomers (the majority of whom are in their 50s) are out of their move-up years, but still a long way from downsizing the family home.  A large chunk of the housing stock remains occupied by Boomers who will likely be keeping their home off the market for some time to come.  For now, it’s members of the Greatest and Silent generations (people over 70) who are most likely downsizing.

With Millennials coming into their homeownership years well before their Boomer parents are likely to downsize, the demand for homes will continue to grow while inventory remains flat.

 

 

 

Minimum down payment will increase for purchases over $500,000

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As you will hear later today in the news, the Federal government is expected to announce a major change to the down payment requirements effective February 2016.

To assist with any client inquiries, we’ve attached a link to the change (a CTV News update), as well as a summary of the details below:

Click for link -> [http://www.ctvnews.ca/mobile/business/feds-to-tighten-mortgage-rules-for-homes-over-500k-1.2695989]

Summary:

Effective Feb 2016 (expected), the minimum down payment required to buy a home over $500,000 will increase.  It will be a tiered system with the first $500,000 requiring a 5% down payment, plus a 10% down payment for the portion above $500,000.

Sample Down Payment Required with New Regulation:

  • $500,000 Purchase = 5% down payment still allowed = $25,000 required
  • $750,000 Purchase = 5% on first $500K plus 10% on next $250,000 = $50,000 required
  • $999,999 Purchase = 5% on first $500K plus 10% on next $499,999 = $74,999 required
  • *as amended in previous Fed changes, anything $1M and over still requires a 20% down payment

We hope you find the above timely, and useful, and if you have any questions regarding the above policy change, or would like to discuss any client specific scenarios, please contact us at any time.

Other – Rate / Product Update

US Rate Increase? All eyes will be on the U.S. next week, when they come together on December 16th to discuss a possible rate hike – the first since June 2006.  While a rate increase would have an immediate impact in the U.S., from a Canadian perspective, it will take longer to work through our economy.  While we will likely see some upward pressure on the 5 year fixed rates, we don’t anticipate any actual increase(s) to be significant.  As we learn more, we will provide you with an update.

Bank Rates Have Come Up Over the Past 2 Months

As you may have noticed, the 5 year mortgage rates at the banks have been on the rise over the past number of months (the variable rates have also risen as banks have amended their discount formulas).  The interesting thing is, the 5 year bond yield — which drives 5 year mortgage rates — remain at near historic lows.  This perceived “gap” in pricing, has led to potential opportunities through some of our mono-line lenders that are offering very aggressive discounted rates & specials versus the banks.  If you or any of your clients would like additional details, please don’t hesitate to contact us at any time as we hope we can help.