As I’m sure you know, Canada’s housing market is on fire, and has been for several years. According to the Canadian Real Estate Association (CREA), between April 2020 and April 2021 – despite a global pandemic – the average house price rose by a whopping 41.9%, rising to $696,000. And data from previous years is similarly impressive.

In Kamloops, the average price of a single family home was $656,238 in April 2021. Condos and townhomes were selling at an average of $401,265 in the same time period.

This is, of course, great news for homeowners, but perhaps not such great news for those trying to get on the property ladder. This has led to a boom in older Canadians helping their adult children with the funds needed for a down payment. According to a recent survey by RBC Royal Bank, 31% of Canadians would help their child pay for a new home.

If this is you, it’s important to ask yourself how you will access the funds to help your child, so you can do so while maintaining your own financial security.

Withdrawing from Investments

Some people turn to savings and investments when they want to access a large sum of money, but this may not always be the best idea. Cashing in investments has the potential to trigger taxes and OAS and CPP clawback, as well as pushing up your marginal tax rate. It can also damage your overall portfolio, which can have a negative effect on your future retirement income – and with more and more Canadians at risk of outliving their retirement savings, this is very important to bear in mind.

Using the Equity in Your Home

In order to avoid the downsides of withdrawing from investments, you can use your home’s equity to help your adult children, that way they also benefit from Canada’s red-hot housing market and the equity it’s enabled you to build up.

HELOC

One way of accessing the cash in your home is through a home equity line of credit (HELOC). This is a revolving line of credit secured against your home that allows you to borrow up to 65% of the property’s value. A HELOC can be a good way of accessing cash, however the approval process has recently become more difficult and some Canadians 55+ are having their HELOC applications denied, often because they lack a regular income due to being retired. Another drawback to the HELOC is the fact that the debt must be serviced monthly, which can eat into your monthly income.

The CHIP Reverse Mortgage

Another way of accessing the cash in your home is with the CHIP Reverse Mortgage. The CHIP Reverse Mortgage allows you to access up to 55% of your home’s value in tax-free cash, which you can use to gift an early inheritance to your adult children and help them get into the property market.

The money you receive won’t damage your investment portfolio and won’t trigger taxes or OAS/CPP clawback. What’s more, since you only pay back what you owe once you leave your home, there are no monthly repayments adversely affecting your retirement income.

The CHIP Reverse Mortgage is a product that’s designed specifically for Canadian’s 55+ with an approval process to fit – this means we don’t discriminate against retirees or those without a regular income, all you have to do is own your home.

If you’d like to find out more about how the CHIP Reverse Mortgage can help you support your adult children, contact a DLC Mortgage Professional today!

Written By: Agostino Tuzi
Post Sponsored by HomeEquity Bank

When in the process of buying a home, there is nothing worse than having your mortgage broker or lawyer call and say “there is a problem”.

If you have found your dream home and negotiated a fair price, which was accepted, and you have supplied all the documentation to your broker, you probably assume everything is fine. The reality is that your financing approval is based on the information the lender was provided at the time of the application. If there have been any changes to your financial situation, the lender is within their rights to cancel your mortgage approval.

To ensure that you don’t encounter any last-minute issues on your home buying journey, there are five major approval roadblocks to be aware of and avoid for a smooth transaction:

EMPLOYMENT

When submitting a request for financing, whether a mortgage or car loan or to handle personal debt, one of the most important aspects the lender looks at is employment. If you were working at Company X for five years at $50,000 a year and – just before your deal is finalized – you change jobs, the lender will now require proof from the new job. This can include proof that probation for this new job is waived, or new job letters and pay stubs at the very least. If you change industries, they will want to see more proof that you are capable of keeping this job. For any employment involving overtime or bonuses, the lender often requests a two-year average, which you would not be able to provide at a new position. Another employment change that could hurt your financing approval would be if you decide to change from an employee to a self-employed contractor.

When it comes to financing, it is best to wait to make any major employment or life changes until after the deal has gone through.

DOWN PAYMENT SOURCE

As mortgage financing is based on the initial information provided, you will most likely need to do a final verification of the down payment source. If it is different than what the lender has approved, it could spell trouble for your financing approval. Even if you said that your down payment was coming from savings and, at the last minute, mom and dad offer  you the funds as a gift, it could affect your approval. This is an acceptable source of down payment, but only if the lender knows about it in advance and has included this in their risk assessment, but it can end a deal.

DEBT

A week or two before your possession date, the lender will obtain a copy of your credit report and look for any changes to your debt load. Since mortgage approval is based on how much you owed on that particular date, it is important not to increase your debt before the deal is finalized. Buying a new car or items for the new home must be postponed until after possession; even if they are “do not pay for 12 months” campaigns because you will need to fulfil those payments, regardless of when they start.

BAD CREDIT

One of the biggest roadblocks to mortgage approvals is credit card payments. When you enter the financing process, it is important that your credit score remains positive. If your credit score falls due to late payments, this can cause major issues with your financing. Even if you have a high-ratio mortgage in place which requires CMHC insurance, a lower credit score could mean a withdrawal of the insurance and removal of any financing approval.

MISSING IDENTITY DOCUMENTS

Before a deal is finalized, the lawyer must verify your identity documents and see that they match the mortgage documents. You may not think it needs to be said, but it is important to use your legal name when you apply for a mortgage. Even if you go by your middle name or a nickname, all legal documents should match.

Keep in touch with your Dominion Lending Centres mortgage professional right up to possession day. Make this a happy experience rather than a heartbreaking one.

How is your credit score calculated? It is a complex answer and, as such, common myths persist. Today, we are going to help you get a better understanding of your credit score and how to make the grade by busting the most common credit score myths!

MYTH #1: TOO MANY CREDIT CARDS WILL HURT MY CREDIT SCORE

The reality is that cancelling healthy, active cards or accounts hurts more than having too many. When you cancel a card, all your payment history is lost as well as the type of credit granted. While you may think having a couple credit cards is extreme, the average Canadian has TEN credit sources. What many Canadians don’t realize is that lenders want to see a history of credit; they want to see payments made on time. In addition, lenders also want to see balances maintained at no more than 70% of your credit limit in use. So, if you have a $10,000 credit card, you don’t want to owe more than $7,000 on it at a time.

MYTH #2: AVOID USING CREDIT CARDS IF YOU WANT TO BUILD CREDIT

It is easy to think that different forms of credit matter more than others, but that is simply not the case. In fact, all lenders want to see is a history of credit and payments made on time. This is what will build your credit score and, eventually, give you the ability to qualify for financing. A history of on-time payments and manageable balances shows the lender that you are a promising investment and not likely to default.

MYTH #3: PAYING MONTHLY UTILITIES BUILDS CREDIT

Unfortunately, paying utilities does not build credit. In fact, these providers only check your credit score to determine creditworthiness; they don’t report your payment history to the bureau. Unless you are late to pay, that is. The other organizations that only report on default are municipalities and vehicle insurance providers, so make sure you keep these payments up-to-date. Be sure to pay any traffic tickets and bylaw infractions too!

MYTH #4: I CAN’T DO ANYTHING ONCE A PAYMENT IS LATE

Don’t be discouraged. Lenders understand that you are only human and, in many cases, they are often willing to work with you if there is a late payment. If they are notified within a timely manner, a late payment can be easily reversed. Just be careful not to make a habit of it.

MYTH #5: CHECKING MY CREDIT SCORE WILL DECREASE IT

Not exactly. There are two types of credit inquiries: soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull this type of inquiry when marketing pre-approval offers. Soft inquiries do not affect your credit score.

A hard inquiry, on the other hand, is triggered by the applicant when submitting a loan or credit card applications. As a result, hard inquiries will affect your credit score slightly as they are included in the calculation done. Recording the number of inquiries a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit; this can be a precursor to someone facing credit difficulty. Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquiries is for preventing identity theft. Hard inquiries that aren’t made by you could possibly be from a fraudster trying to open accounts in your name; therefore only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked.

In addition, hard inquiries remain on all credit reports for two years, after which they are removed. Soft inquiries only appear on the report that you request from the credit bureaus and will not be visible to potential creditors.

Credit score plays a vital role when it comes to potential financing for car loans, mortgages, or even personal loans. It is important to recognize good credit habits now and maintain them for a higher credit score today, and better chance of financial approval in the future.