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by Helen Morris,
National Post
Edmonton Mortgage Rates
Securing a great mortgage deal can take a bit of work and planning, but if you are a salaried employee then you will be taking a well-trodden path. Experts and friends and family alike will all be there to offer advice and tell you about their experiences.
However, if you are self-employed, the process can be more complex.
The most straightforward way to qualify for a mortgage as a self-employed individual is for the lender to look at the income on your Canada Revenue Agency notice of assessment for the past two years and see if you qualify for a loan in much the same way as an employee would.
“The first thing I make sure is that the tax filings and financial statements are in order so we can see the track record of their earnings,” says Rob Regan-Pollock, senior consultant at Invis mortgage brokerage in Vancouver. “If the last two years of earnings are sufficient to qualify for the mortgage that they’re looking to take out, then they are a regular-income-qualified file and can put as little as 5% down.”
Insurers such as the Canada Mortgage and Housing Corp. (CMHC) will allow self-employed individuals to increase the income on their notice of assessment by 15% for the purposes of mortgage qualification. This is a generally accepted increase to compensate for non-cash items such as business use of the home. Their website gives a full rundown of the requirements for self-employed borrowers. read the following PDF for more information:
http://cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Self-Employed.pdf.
“Consistency in income is your best bet [in order to secure a mortgage],” says Carol Bezaire, vice-president, tax and estate planning, at Mackenzie Financial in Toronto. “If you are thinking about going for a mortgage, make sure that over the last two or three years you are consistent in how much income you are bringing in.”
In order to determine your income, CMHC will average your income from the past two years, but if your income has been rising each year for the past four years or more, they will use the most recent year for their calculations.
However, in order to take advantage of certain tax strategies, many self-employed individuals may keep money in their business rather than generating income. If you are unable to qualify based on your verifiable income you can still obtain insured mortgage finance, but CMHC will charge you a higher premium. Since April this year, CMHC only permits you to state your own income if you have been in business for less than three years.
Ranjit Dhaliwal, a mortgage broker with Mortgage Intelligence in Brampton encourages clients to register their business, as the licence or article of incorporation can show if they have been in operation for less than three years.
Mr. Dhaliwal says to get the best rates when stating your own income, many lenders will be looking for mortgage loan insurance unless you can put down a deposit of more than 35%.
The insurers also recommend that lenders demand higher minimum credit scores from borrowers stating their own incomes.
“It’s absolutely essential that they have a good credit score,” says Mr. Dhaliwal. “Self-employed individuals tend to have higher balances on their credit cards, lines of credit and so on because they are using that for their business. If they’re planning on purchasing a house or refinancing a house, maybe bring these balances down a few months before going to see a mortgage broker.”
The early years of self-employment can be a time of financial uncertainty while you establish your business and build up a reputation with customers.
Financial advisors say look before you leap into anymore debt at this time.
“Once you’ve checked your finances and you’ve looked at your credit score and everything else, it may not be the time to buy,” says Ms. Bezaire. “Maybe it’s the time to rent for a little bit, until you get firmer ground under your feet.”
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Interest Rates Forecasts from the Big 5
Canadian Mortgage Trends has just published a compilation of Canadian interest rates forecasts for the last part of 2010 from each of Canada’s Big 5 banks.
The “Big Five Banks” is a colloquial expression for the five biggest banks that dominate the banking industry in Canada (Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce).
All 5 Banks are classified as Schedule I banks, that is, domestic banks that operate in Canada under government charter, and they are all operationally headquartered in Toronto, Ontario. The banks’ shares are widely held, with any entity allowed to hold a maximum of twenty percent.
Below you’ll find a summary of their latest year-end interest rate projections
(For a more detailed summary and more information, please visit the original post from Canadian Mortgage Trends at:
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/10/canadian-interest-rate-forecast.html):
Latest Overnight Rate Forecast
Bank 2010 2011
BMO 1.00 2.25
CIBC 1.00 1.75
RBC 1.00 2.25
Scotia 1.00 1.75
TD 1.00 2.00
Year-end Avg 1.00 2.00
Chg vs Today 0.00 +1.00
(All figures rounded to the nearest 1/4 point increment.)
Latest 5-Year Government Bond Yield Forecast
Bank 2010 2011
BMO 2.03 3.05
RBC 2.45 3.50
Scotia 1.85 2.50
TD 2.30 3.10
Year-end Avg 2.16 3.04
Chg vs Today +0.29 +1.17
(CIBC’s 5-year bond forecast was not available.)
Variable-Rate Mortgage Forecast
Most analysts now expect 5-year variable rates in the 3.25% range by year-end 2011.
Fixed-Rate Mortgage Forecast
Banks forecasts suggests deep-discounted 5-year fixed rates could rise to roughly 4.24% by year-end 2011.
Below you’ll find a summary of the latest year-end interest rate projections from each of Canada’s Big 5 banks. Use them only as a rough guide because rate outlooks have considerable margins of error.
Latest Overnight Rate Forecast
The Bank of Canada’s overnight target has a direct impact on variable mortgage rates.
Bank 2010 2011 BMO 1.00 2.25 CIBC 1.00 1.75 RBC 1.00 2.25 Scotia 1.00 1.75 TD 1.00 2.00 Year-end Avg 1.00 2.00 Chg vs Today 0.00 +1.00
(All figures rounded to the nearest 1/4 point increment.)
Latest 5-Year Government Bond Yield Forecast
Government bond yields drive 5-year fixed mortgage rates.
Bank 2010 2011 BMO 2.03 3.05 RBC 2.45 3.50 Scotia 1.85 2.50 TD 2.30 3.10 Year-end Avg 2.16 3.04 Chg vs Today +0.29 +1.17 (CIBC’s 5-year bond forecast was not available.)
Variable-Rate Mortgage Forecast
Most analysts now expect the Bank of Canada to remain on the sidelines until 2nd quarter 2010. On average, major economists now predict a 100 basis point increase in the overnight rate over the next 15 months. Their outlooks, if accurate, imply a 4.00% prime rate by December 31, 2011. Prime rate is currently 3.00% and the 10-year average of prime is 4.50%.
Based on a 75-basis-point discount from prime, these forecasts suggests 5-year variable rates in the 3.25% range by year-end 2011.
Fixed-Rate Mortgage Forecast
Banks foresee 5-year bond yields climbing 117 basis points in the same 15-month timeframe. That would put the 5-year yield at 3.41% by the end of next year. The 10-year average of the five-year yield is 3.93%.
Assuming a typical 120 basis point spread above yields, these forecasts suggests deep-discounted 5-year fixed rates could rise to roughly 4.24% by year-end 2011.
Burn My Mortgage
Roman and Christine are a charming family full of financial contradictions. By day, Roman manages cash and balances budgets. But, when it comes to their own finances, the more they make, the more they spend. They would like to be able to help their kids to purchase their first homes, as their parents did for them – but, at the rate they spend, they will have nothing but receipts to leave as their legacy.
That’s the scenario for the first episode of the recently broadcast TV series “Burn My Mortgage“, that attempts to show homeowners how to reduce their mortgage burden by doing small sacrifices that will eventually lead to a substantial decrease in the number of payment years and to savings of tens of thousands of dollars off their mortgages.
In this first episode the family is spending $17,000 a year on sports equipment and events, plus $12,000 a year dining out, ordering in and entertaining friends, and another $17,000 a year on things like vacations, housekeeping, landscaping and dry cleaning.
By the end of the show, the family learns that by cutting spending on those unneeded luxuries by half, they can pay their mortgage off much sooner and save a big chunk of money in interest. The message is that ignorance and a little sacrifice is preventing many families from reaching a mortgage-free life. For example, in this first episode, Roman and Christine’s mortgage details before entering the program are:
- Mortgage Amount: $450,000
- Amortization: 25
- Interest cost: $130,000
- Actual Cost of Mortgage: $580,000
and after some common sense corrections it becomes:
- Mortgage Amount: $450,000
- Amortization: 11
- Interest cost: $55,000
- Actual Cost of Mortgage: $505,000
You can watch the full first episode of “Burn My Mortgage” online at the following link:
http://www.wnetwork.com/
Global Banks facing Funding Crunch
Global banks are facing a $4-trillion reckoning over the next two years as pre-crisis financing strategy comes back to haunt them, according to the International Monetary Fund (IMF), whose latest report, released Tuesday in Washington, sent out an unequivocal message that could be summed up this way: yes, the financial crisis is behind us, but there is razor-thin margin for error.
The IMF says governments should resist the urge to pull the plug on the support measures they created for their banks. Too many of the world’s financial institutions remain too shaky to be left to walk on their own. The bottom line is that financing costs for banks are almost certainly set to rise, putting a significant strain on the global financial system and representing a risk to the economic recovery.
“Funding is perhaps the major challenge confronting banks everywhere,” Jose Vinals, director of the IMF’s monetary and capital markets department, said at a press conference in Washington where he presented the fund’s latest bi-annual Global Financial Stability Report, where it was stated that:
“As foreshadowed in the April, 2010, GFSR, banks now face the greatest vulnerabilities on the liabilities side of their balance sheet. There has been little progress in lengthening maturity of their funding.”
This is primarily an issue for continental Europe, Britain and the United States. Moody’s ranked Canada among a handful of countries, including Japan and China, where banks have managed their financing requirements to keep the average maturity at more than five years. Rod Giles, a spokesman for the Office of the Superintendent for Financial Institutions, said from Ottawa that Canada’s banking regulator has no worries over the banks’ financing plans or their ability to tap markets.
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