Mortgage 101 – Merry Debtmass: getting a mortgage in 2021 | January 2021

In Season 3, Episode 1, of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on News 95.7, the guys talk about how homeowners continue to move through COVID-19, changing property values, and closing costs.

Mortgage 101 with Clinton Wilkins & Todd Veinotte – January 2021

Don’t feel like listening to the podcast? Check out the transcript below.

Transcript:

Welcome to the new Mortgage 101!

Todd Veinotte: [00:00:00.87] Welcome to Mortgage 101 Your Guide to Homeownership with myself, Todd Veinotte, and the one and only Clinton Wilkins. We are back, my friend. How’s that feel?

Clinton Wilkins: [00:00:21.44] I mean, I think 2021 is going to be a good year. I think that, you know, a lot of people had challenges in 2020 and you know, I think 2021 is going to be where it’s at.

Todd Veinotte: [00:00:31.22] I think so as well. And of course a little history lesson for people and many people listening would know that you and I have had a relationship on the radio for a couple of years now on News 95.7.

Clinton Wilkins: [00:00:44.87] And I thought we were done because, you know, there was a lot of challenges obviously in 2020 and, you know, challenges, in many different things, not just people’s employment, you know, their life and everything else. And you know what? I’m excited to be back.

How did COVID affect mortgages

Todd Veinotte: [00:00:58.25] Yeah, I dealt with some of these challenges myself, obviously. But I mean, and, but in a way, I think that makes it relatable to people out there. And with COVID, you would know in your business firsthand how many people, do you have a per cent of clients that you have that would have been impacted in some way with COVID, the pandemic and job loss?

Clinton Wilkins: [00:01:19.79] Well, I think the national history was, I think some somewhere around the 33 per cent or so, you know, were impacted. I know there were several, several deferrals and even maybe more than the people that their income was impacted. There were deferrals happening. So, you know, it was a challenging year. And, but I think there were some good things that came out of it, too. You know, I think people got back to basics. They were looking at what they were spending. And I think there was a lot of frivolous loss sometimes in terms of what your household income is. And I think people got back to basics, which I think is exciting. I can tell you from our clients, many people said that, you know, they’ve never had more money than they have right now, which I think is positive. Maybe people weren’t going out to eat or going out and shopping and stuff as much as they might have been if we were in a regular year. And I think that’s paved the way for people to get that homeownership piece coming.

Todd Veinotte: [00:02:12.92] Well, when the pandemic started, the thought was across the board, including for your business, because you and I chatted when the lockdowns began and all that, because we were doing the radio show.

Clinton Wilkins: [00:02:22.82] And we were on regularly.

Todd Veinotte: [00:02:24.13] And we were on regularly. And you were uncertain even whether we were going to continue the segments or not. But we forged ahead. You believed in it and you ended up having a banner year, right?

Clinton Wilkins: [00:02:33.67] It really was our best year ever. But I can tell you, in March, we were concerned. We were concerned that realtors were going to continue selling homes. We were concerned that lawyers were going to continue practicing the law. We were concerned the lenders were going to continue lending. There were some immediate liquidity issues within the banks, but the federal government jumped in and created a bunch of liquidity that kept them lending, which is really, really so important. But there were a couple of weeks there in March that everyone was very, very concerned, including us. And I didn’t know what was going to happen. But even for me personally and in my business, I looked at what we were spending and figured out what is that bare minimum that we can survive on. And I think that was such a great practice. And it’s something that we’re still doing today and into 2021, even though for us and our business here and at the mortgage brokerage, you know, we had a great year and I think in 2021 it’s going to be a really good year for us as well. There’s a lot of really great things happening here in Halifax.

Todd Veinotte: [00:03:34.55] Well, that said, though, we’re waiting for, to see how the vaccines go, Moderna and Pfizer. And there’s a lot of stories about complications with the vaccine in the rollout and how quickly it’ll get out to the provinces. So we don’t know. This is the uncertainty that at some point we need to get some normality in our economy back, though, is there a barrier or a threshold that you think economically that is required in order to keep this momentum going?

Clinton Wilkins: [00:04:01.76] Well, I think we’re very resilient here in Halifax, which is good. We had our Atlantic bubble, which I think for us positively impacted things. We are not as dependent on the West and Ontario as we might have thought that we were, because our borders really have been closed the rest of the country for months and we flourished here in Halifax. I think that people from B.C., from Alberta, from Ontario have been moving to Halifax because they’re thinking that if they never need to go back to the office, what a great place it is to live. You can have a brand new, new construction home here in Halifax for under $500,000. That might be the same as your one bedroom condo in downtown Toronto. And we still have a very good quality of life here. So I don’t see things slowing down. And I hear these concerns about inventory in terms of what’s available for people to buy. But guess what? People are still buying. And the one really great thing here about Halifax, the rest of the county, Nova Scotia, if you can’t afford a home on the peninsula, guess what? You can buy a home in Dartmouth, if you can’t afford a home in Dartmouth, you can buy a home in Eastern Passage and if you can’t afford a home in HRM, you can buy in Hants county, you can buy in Truro, you can buy in Windsor, there are real estate available that is within a very reasonable distance of downtown Halifax, and that’s exciting.

Buying rurally

Todd Veinotte: [00:05:29.92] People need to understand, though, when you are buying rurally and we’ve talked about this on our livestream Facebook livestream, that lenders have, there are different rules, I guess, or there are different guidelines, depending if you live rural as opposed to in HRM?

Clinton Wilkins: [00:05:46.00] Yeah, that’s 100 per cent true. There’s a bit of a misconception. People think that if you’re buying a cheaper property in a rural area, it’ll be easier to get approved. If anything, it’s more challenging to get approved. Those are the properties that might take a little bit longer to sell, which creates a higher level of risk to the lender. So if you don’t pay and they have a loss, they want to be able to move that right away and cover their liability. But if you’re on well and septic and you’re in a more rural area, typically those properties take a longer time to sell than they would if they were in the core of the city.

Coles Notes for what a mortgage broker does

Todd Veinotte: [00:06:17.77] Alright. I don’t want to get too far ahead of us. We’re going to be talking about Merry Debtmass and so much important information here this time of year we’re going to get to. But let’s give everybody a little teaching who may be tuning in and not exactly sure what you do, what a mortgage broker does, what the difference between what you do and what a bank does. Let’s give everybody a little teaching here.

Clinton Wilkins: [00:06:38.99] Yeah, we’ll give them a little like Coles Notes version. We’re getting into 2021 and we’ll start fresh with that. And we probably have some new listeners. This is a new format for us. It’s a one hour podcast. Previously when we were on the radio, we were doing a 30 minute format, most times, with a call in show. So this time we’re going, it’s a podcast style. You and I are recording it and we have our listeners here listening in, which we really do appreciate. And if there’s anything you do want us to talk about on this podcast, send us an email, send me a tweet, send us a Facebook message and we’ll talk about it on the next episode. No problem at all about that. We’re basically going to pick the theme of these podcasts. We’re going to talk as in depth as we can, and we’re going to talk about things that are happening in the news because this is happening in real time. So today we’re talking about Merry Debtmass and as we know, coming into 2021, everyone has New Year’s resolutions. A lot of resolutions people have are around health and wellness. But we think that this year financial health and wellness is even more important now than it ever has been in the past. And with Marry Debtmass, we really talk about is now the right time to refinance your home or do an early renewal for those of you that are homeowners. When we’re doing a refinance, we can refinance up to 80 per cent of the market value of your home.

Clinton Wilkins: [00:07:58.36] So, for example, if your home is worth $300,000, we can do a new mortgage up to $240,000 less your existing mortgage or homeowners line of credit. The balance of that equity can be used to consolidate debt, renovations, investments. And also we’re talking a lot about early renewals because the rates are at all time lows. So a lot of clients are looking at breaking their term early. And does that make sense to pay the penalty and secure a lower rate for the next period of time? I don’t have a crystal ball and I’m not an economist, but I can tell you that the rates are at the bottom. We project and the economists are saying that they’re going to stay low for the next couple of years. But again, we’re not sure. So early renewals could be a good solution as well in 2021. But now we don’t want to forget about our friends who don’t own homes. Right. You know, there’s many people who want to get into homes. I can tell you, I’ve never had so many people pre-approved, which is very exciting. And, you know, we’ll certainly talk a little bit about that as well. And I think the pre-approval process is also just so, so important. And I think a lot of people are going to have resolutions to say, you know what, I’m tired with renting. I want to own my own place. I want to control my situation. And, you know, we can certainly talk about that as well when we come back.

Todd Veinotte: [00:09:13.88] Okay, but before that, you’ve got about a minute before we go to break again, the mortgage broker, the difference between you, and I tried to get you to say this earlier. You didn’t listen to me.

Clinton Wilkins: [00:09:21.85] I know, the difference between us and going directly to the bank is, you know, we’re biased to the consumer and we’ve access to about 40 different lenders. We have a great team here and you can certainly check us out. You know, the best place to check us out is at TeamClinton.ca/radio, lots of great information there. And we have access to 40 different lenders and we’re biased to the consumer. That’s really the business that we are in. And the majority of our business, over 60 per cent, is repeat clients. So I think that really speaks to the quality and value that we’re giving these clients everyday and that advice. So they’re coming back and we’d love to help new people. So I think that, you know, listeners that are listening to our podcast and on the radio, certainly check us out or check out an unbiased mortgage professional in your area.

Todd Veinotte: [00:10:11.26] And just the volume of lenders that you have available.

Clinton Wilkins: [00:10:14.63] Yeah, exactly. And everybody situation’s different. And the one thing that when you go to the bank, they’re really glorified data entry clerks. They only have access to that one product. And not every lender is for everyone.

Todd Veinotte: [00:10:26.68] Alright. We’ll continue with Merry Debtmass when we come back.

Listening to Michael Jackson

Todd Veinotte: [00:10:41.16] Welcome back to Mortgage 101 Your Guide to Homeownership with myself Todd Veinotte and Clinton Wilkins, of course. Are you a Michael Jackson fan, Clinton?

Clinton Wilkins: [00:10:48.21] I love MJ and I think everyone probably remembers where they were when they heard that MJ was no more.

Todd Veinotte: [00:10:55.14] Is MJ, I’ve never referred to him as MJ. Is that, you’re not a millennial, but

Clinton Wilkins: [00:11:00.48] I’m not a millennial. I’m just before the millennials.

Todd Veinotte: [00:11:02.74] Shadows a millennial. I’ll call you millennials, is that a millennial thing?

Clinton Wilkins: [00:11:05.49] Well, I mean, whatever. I could be a millennial, I mean, I probably act like a millennial sometimes. But, you know,

Todd Veinotte: [00:11:10.87] That skater outfit that you’re wearing this morning.

Clinton Wilkins: [00:11:12.78] I don’t know if a skater outfit. I think it’s more of a yoga outfit we’ll call it.

Good debt vs bad debt

Todd Veinotte: [00:11:19.14] Alright. So we’re going to talk to Merry Debtmass. Look, when it comes to debt, there’s such a thing as good debt and bad debt, we hear that terminology right?

Clinton Wilkins: [00:11:29.03] Always.

Todd Veinotte: [00:11:30.35] Always and you can verify that. And what’s the difference?

Clinton Wilkins: [00:11:33.05] Well, I think sometimes people refer to bad debt as credit cards, lines of credit stuff that is going to drag on. Those credit facilities were not designed to be forever plans, but some people have money that’s sitting on a credit card that never gets paid down. And I can tell you, certainly there are some very large unsecured lines of credit that people just use for whatever project and then never pay it down. So they’re just paying that minimum payment, which sometimes is just the interest. And no one wants to go into retirement with unsecured debt. But I can tell you, more and more Canadians are going into retirement in that situation. But I think that looking at a credit vehicle like a mortgage could be a great solution for a lot of borrowers. You can refinance up to 80 per cent of the market value of your home. So it really gives you some availability to get some of that debt situation under control and get it into a credit facility that forces you to pay it down. So with a mortgage, you can amortize it over a maximum of 30 years. That might not be right for everyone. But if you’re going into retirement and you’re like, I’m never getting this debt paid down, but I want to start working on it and getting it into a lower interest rate product, an extended amortization, I think makes sense. And oftentimes an extended amortization on a mortgage like that, even going into retirement is going to be cheaper than renting. And you know what? You can right your situation. I see a lot of borrowers, and it’s sometimes our existing clients, or maybe people that are new to our brokerage that are coming in to see me one, two, three, four, five years before retirement that we can plan and really make a great solution for them, so they know that they’re in a good situation going into that retirement situation.

Todd Veinotte: [00:13:16.82] Just curious, what are some of the I don’t know why, but it’s interesting: what are some of the biggest numbers you’ve seen in consumer debt with your clients just off the charts?

Clinton Wilkins: [00:13:25.31] You know, sometimes we see consumer debt in excess of $100,000.

Todd Veinotte: [00:13:30.23] Wow.

Clinton Wilkins: [00:13:30.23] And that can be a very slippery slope. You know, for me, I don’t want to be in debt. You know, I want to have that flexibility. For me, I’m self-employed. I don’t know when the next paycheck is going to come. Luckily, we do have a business that we’re doing many transactions, so we have money coming in all the time. But, you know, for many self-employed people, they don’t know when their next paycheck is going to be. And I think that if you don’t have consistent income, and you’re also riddled with debt, that’s when we’re seeing some of these losses. And I think this year we’re going to see some people that are going to be in some financial hardship. The deferrals are over. Some Canadians, their income has not recovered, you know, if you’re involved in the restaurant business, in the gym business, in the tourism business, your income is likely still impacted. And we’re having conversations with people, you know, about their situation. There is nothing dishonorable about selling your home. And sometimes that’s the best solution. You know, I would love to do a mortgage, but we’re not doing a mortgage for mortgage sake here. we really want to make sure that we’re going to put people in the best possible solution.

Clinton Wilkins: [00:14:42.04] And sometimes it makes sense to sell. And, you know, we’re having conversations like that all the time. And I think January is a great time to talk about Merry Debtmass because all these credit card bills are going to start coming in. Some of us have overspent in the holiday season, for whatever reason. We wanted to go out of 2020 on a high note, you know, put lots of gifts under the tree. But it doesn’t necessarily mean that that was the best situation or best solution. And I think coming into 2021, look at your financial situation, open your mortgage statement and, you know, give us a call. We can have a conversation over the phone to see, does a refinance work for you. And sometimes that’s just running a couple quick numbers and we may say, no, you should hold off. But for some Canadians and some people who live in Halifax, having a refinance could be a great solution and really put them on the best foot forward for 2021.

Properties values are up, which means more equity

Todd Veinotte: [00:15:38.63] Alright. So if somebody purchased a home in, two years ago, for instance, I bought a home a year and a half, two years ago, whatever it might be, in an up and coming area of Springfield, which it is by Dunbrack and it’s up and coming, and the property value just gone up because of purchases. So people may have more equity than they even realize in their properties.

Clinton Wilkins: [00:16:02.83] Well, I think there’s two things to consider here. One thing, the property values are up. So now is a great time to refinance, because chances are when we get an appraisal on people’s properties like the one that you bought, the appraisal will come in higher than it would have last year. So that’s one great thing.

Todd Veinotte: [00:16:19.09] You know that’s for sure?

Clinton Wilkins: [00:16:20.89] That’s for sure. That’s for sure. The other thing is the interest rates are lower. So there’s two really good points on why people should think about a refinance or an early renewal: value is up, interest rate are down, and we can eat up some of those penalty costs because of these lower interest rates. We want to make sure that we’re at least at a breakeven position when we’re doing a refinance or an early renewal. I would never want to put someone in a position that they’re not going to save money because, and it depends on what their situation is, if you’re in a five year fixed rate and you’re six months into that five year fixed, you may have a very large penalty to come out of that mortgage and it might not make sense. And I have conversations like that with consumers all the time, and we really urge them to get what their penalty quote is going to be up front. There’s also some lenders that will not allow you to refinance your mortgage early if you had like a no-frills or a low rate mortgage. Sometimes there is restrictive covenants on that mortgage that will not allow you to pay it out early. So I think just having a look at what the borrower situation is and really giving that that advice, I think is so valuable.

Todd Veinotte: [00:17:30.67] So this, though, for you and you have your own clients, like I’m an existing client. And I know that because we had a conversation about this, because the way you set up my mortgage, my penalty was minimal. Small. And that’s part of what you do when you’re looking, you’re having this dialogue with your clients. Right?

When you are in a variable rate vs a fixed rate during COVID

Clinton Wilkins: [00:17:49.03] And I think that brings up a really good point. If you’re in a fixed rate, you’re either going to pay three months interest or an interest rate differential to get out of your mortgage, out of the term early. And the longer amount of time that you have remaining on your term, the higher that interest rate differential could be. The banks are like the casinos. They never lose. And the banks are also like the cell phone companies. They treat new customers better than they treat the existing customers. But for customers like you, Todd, who are in a variable rate mortgage, I think there’s a lot of great news. And I think the people that are in the variable are the ones that are really going to have the most opportunity to do something now in 2021 or the people that are close to the end of their term. So when you’re in a variable, it only costs three months interest to get your term early and you can get out of your term at any time. That’s no matter if you want to sell the property, if you want to refinance or if you want to do an early renewal. So there’s lots of flexibility in the variable and about 60 per cent of our clients are in variable. It’s not as popular today as it was pre-pandemic because the discounts on the variable are not quite as good as they once were.

Todd Veinotte: [00:19:02.12] From the lenders themselves, why is that?

Clinton Wilkins: [00:19:04.55] Because when the pandemic first started and things started slowing down, locking down in March, the Bank of Canada started ringing the alarm because inflation was down. Inflation actually was negative at some point. So they lowered the key overnight rate. And the lenders are like, oh, my goodness, we can’t afford to continue lending at prime minus 90, prime minus 100 or more. So they reduced those discounts and the prime rate actually went down to 2.45. So it was great news for consumers who already had a mortgage because if they had a mortgage and they were at prime minus 100, for example, those borrowers have an interest rate at 1.45, which is amazing. But the new borrowers that were getting mortgages after March were not getting that prime minus 100. Maybe they were getting prime minus 50, for example. So that really pushed those consumers into a fixed rate because the fixed and the variable were almost at parity, which is a very strange situation. Historically, borrowers do better in a variable rate, but, you know, the world’s upside down. So why shouldn’t interest rates be upside down? And more and more consumers are doing a fixed rate today than they were before because there is uncertainty that the prime rate is going to stay as low as it is right now. The economists are saying that is going to stay for the next two to three years low. But again, things can change. As we know, there’s a lot of news of what’s happening ]across the border and that could impact our situation.

Todd Veinotte: [00:20:37.96] Okay, I want to get the get into the nuts and bolts about the process of refinancing itself. We’ll do that when we come back with Mortgage 101, Clinton Wilkins and myself, Todd, Veinotte,

“We’re all young at heart”

Todd Veinotte: [00:20:58.44] Alright, that almost sounds gospel to me. Well, it is actually gospel. We’re back with Mortgage 101 Year Guide to Homeownership with myself, Todd Veinotte and Clinton Wilkins. Does that make you feel spiritual, Clinton?

Clinton Wilkins: [00:21:11.79] Well, I don’t know if it’s spiritual, and I’m certainly not 41, at least not 41, yet.

Todd Veinotte: [00:21:16.86] You’re rubbing it in? It’s a dig.

Clinton Wilkins: [00:21:20.22] It’s coming.

Todd Veinotte: [00:21:21.21] It’s a dig about my age, isn’t it?

Clinton Wilkins: [00:21:21.93] Well, I mean, you’re still young dude.

Todd Veinotte: [00:21:24.72] No, I’m not.

Clinton Wilkins: [00:21:25.45] Yeah, you are.

Todd Veinotte: [00:21:26.88] Young at heart, perhaps.

Clinton Wilkins: [00:21:27.69] I mean we’re I think we’re all young at heart.

Does age matter with mortgages?

Todd Veinotte: [00:21:29.97] To that, quickly, before we get into refinances, is there a threshold when people should have a mortgage? When it comes to age.

Clinton Wilkins: [00:21:37.14] We are not ageist. So I can tell you, I do have some clients who are 90 here.

Todd Veinotte: [00:21:42.03] 90? New clients?

Clinton Wilkins: [00:21:43.86] New clients who are 90 years old. And I do have some clients that are 19 years old. But our average client in this office is somewhere in their 40s. Yeah, that’s kind of the average is mid to late 40s.

Todd Veinotte: [00:21:56.73] Some would question why a lender would want to lend to a 90 year old money.

Clinton Wilkins: [00:22:02.91] Well, if a 90 year old has equity in their home. Has the income and the credit, you know, they can qualify

Todd Veinotte: [00:22:11.64] For 20 year mortgage though?

Clinton Wilkins: [00:22:13.35] For a 30 year mortgage if they want.

Todd Veinotte: [00:22:16.23] But will they live that out, right?

Clinton Wilkins: [00:22:17.16] No, but you and I might not live for another 30 years. We don’t know. But there might need to be a little bit more justification on why we’re doing the transaction. We certainly do have policies and procedures around lending to seniors, and it’s more to make sure that everyone’s protected and that everyone’s getting the right amount of disclosure. We do that with everyone, but we really want to understand that if there’s a 90 year old coming in here, they understand really what they’re getting because we don’t want to be the place that, you know, is going to be tagged for doing something that’s not right. And this is the exact reason why we don’t want to do refinance if it’s not right for the consumer, it doesn’t matter what their age is. And sometimes the transaction really is not in the best interest and we won’t do it. And, you know, I think that is powerful. We send people away, but guess what? They come back and sometimes it’s all about making a plan, getting something together. And, you know, we certainly will circle back with them when that time is right.

Refinance — “it still would be a first mortgage on your property”

Todd Veinotte: [00:23:24.69] Alright, we’re talking refinance here, and some people won’t refinance just based on the fact that they don’t hear about what’s involved, the laundry list.

Clinton Wilkins: [00:23:34.49] I think that sometimes, like a refinance has a negative connotation. Like, I don’t want to go get a second mortgage or a third mortgage. It still would be a first mortgage on your property. We would pay out the existing mortgage that would be on there. And I think the goal about refinancing is to put you into a better position. And everyone needs and deserves to be in a better position, regardless if that’s what a refinance means or not. You know, I think that we need to break down some of these barriers to say, you know what, I want to get mortgage free. I have some consumers that have no mortgage on their house but have that $100,000 worth of unsecured debt. That doesn’t make sense. Why would someone want to have debt at a higher interest rate than they would at the rates of what, a mortgage is? And, you know, consumers can get a mortgage under two per cent today. And as we know, credit cards and lines of credit can be five to 20 per cent interest. And I think that with a refinance, it’s not about creating new debt, it’s about putting the debt that you have in the best possible vehicle.

Todd Veinotte: [00:24:43.37] What about using some of that money, refinancing and potentially investing money, because the math would be there over a 10 year time on an index fund, the numbers would work. Some don’t have the stomach for the volatility of that. But do you see that?

Clinton Wilkins: [00:25:01.76] I see consumers coming in that own their home free and clear, that want to use the equity in their home for investment purposes. I do see that. They have to disclose to their investment people that it is borrowed funds, because that has a certain level of consent that they have to say as well, because just imagine if you borrow against your home and you invest it, then you lose that money, you still have a mortgage and you may not have the income to then take off that investment to service the debt. So we really want to make sure you can afford it without any of that investment income. So it would really be based on your employment income, your pension income, stuff like that. We want to make sure that you could afford that mortgage. And when you are borrowing from your home and if it is free and clear, if it’s above a certain threshold of maybe a quarter million dollars, the lender is going to want some explanation of where those funds are going to.

The mortgage rate stress test

Todd Veinotte: [00:25:53.03] The stress test applicable?

Clinton Wilkins: [00:25:55.04] Stress Test is applicable to everyone.

Todd Veinotte: [00:25:57.50] Everyone.

Clinton Wilkins: [00:25:58.25] So today we qualify people at a higher rate. It’s under five per cent. But that’s where the federal government thinks that median mark is going to be. They want to make sure that people can afford the mortgage if the rates do go up. You know, an interest rate below two per cent today is great. And you know what? It’s great for the consumer. It’s great for the amount of interest you’re going to pay, but it’s not going to be that rate forever. And we want to make sure that when these mortgages come up for renewal, the consumer is still going to be able to afford it.

We look at income, assets and credit

Todd Veinotte: [00:26:28.52] Alright, let’s talk the refinance nuts and bolts, what people, need documentation, again, daunting sometimes when people look at the list here and a deterrent to some to just say, I’m not doing it, but we already address that.

Clinton Wilkins: [00:26:40.49] So I typically tell consumers that if we’re going to do a transaction, you need to invest probably five hours of your time into that. And with many files, the consumers are saving five thousand dollars. So I’d love to be paid a thousand dollars an hour. I don’t know about you, Todd.

Todd Veinotte: [00:26:55.31] I’m sure you already are.

Clinton Wilkins: [00:26:56.66] I don’t know. We’ll see.

Todd Veinotte: [00:26:59.00] You don’t want to brag.

Clinton Wilkins: [00:26:59.64] Yeah, I don’t want to brag, but I can tell you that we work really hard and it’s really about putting those consumers in the best possible position. And it’s not like you just come in here and the transaction is done. We need to do the exact same amount of work for a refinance, a renewal, a purchase. It’s all very similar types of documentation. So we look at three things. We look at client’s income, we look at their assets, and we look at their credit. We put that situation together, submit the file for approval. Once we have the approval back, the lender will condition for certain things. On a refinance, majority of the time there’s an appraisal requirement. Some lenders use a low ratio valuation system that is done through the Canadian Mortgage and Housing Corporation. So sometimes the property value is supported internally. So that’s a bonus when they don’t have to have an appraisal. But majority of people who are doing a refinance want to get their property appraised. They want to know what the real market value is and we can refinance up to 80 per cent of the market value of that home. So that’s one thing. The other thing is we need to confirm their income. So anything that we have in our application, we have to prove to the lender for compliance.

Clinton Wilkins: [00:28:13.61] So if we say you’re employed with an employer for three years, we typically would be required to give them your pay stub, potentially your T4s. And sometimes they ask for a letter of employment to confirm the details of the employment. And sometimes they’ll actually call on the letter to ensure that all the details in the letter are accurate. So, you know, when you’re employed, it’s pretty easy. Job letter, pay stub, T4s, that should be no problem. Those are documents that are very readily and easily available. When you’re self-employed, it’s a little bit more complicated, but we love doing mortgages for self-employed people. Reason being is oftentimes when people are self-employed, they’ve maybe been turned down by the bank or by their lender. And they’re concerned because their situation is a little bit more complex. But because we’re doing so many transactions, we’re really experts at that type of thing. And when you’re self-employed, typically what we do is we look at two years of your income that you’re claiming on your personal income tax. So we would get two years of your tax returns, two years of your notice of assessment. And if you’re a sole proprietor, we would average that income and we could actually gross it up by 15 per cent.

Self-employed and own a corporation

Clinton Wilkins: [00:29:21.35] And that’s the number that we could use to qualify you. If you own a corporation, then we would use maybe your salary from the corp., maybe your dividends, and then we would do it two year average of that income. Now, self-employed people are notorious at having very low income on their income tax. Nobody wants to pay tax. I don’t. I pay a lot of it. You know, you pay tax. But self-employed people love trying to have a very low amount of income on their income tax. And some borrowers have great accountants that they’re able to keep a lot of money in their corp., and have very low income on their tax returns. But at the end of the day, if you’re not having a lot of income on your income tax, you may need to qualify with an alternative lender. We might need to do a product called stated income for you. And that stated income product, we still need to justify your income. That might be from financial statements from your corporation. That might be 12 months of bank statements from your business account. And it needs to be in line with the type of industry that you’re working in. So we’ll do an application and maybe on your income tax, it shows that you make $30,000 a year, but you come in and say, Clinton, I actually make $75,000.

Clinton Wilkins: [00:30:33.65] And here are the whys. Here is the money that’s still remaining within my corporation. Here are the deposits that are going through my bank account. And if we can justify that, we have lenders that will do that. Now, it won’t be at the rates that are as low as a normal borrower could get or even a borrower who is self-employed, that we have the income confirmation on their tax returns. The borrowers that we have to do these stated income programs for the rates are somewhere between four and six per cent, typically. And sometimes the lenders also charge a set up fee of one or two per cent. So it’s slightly more costly. And the borrowers are like, well, I don’t really like that higher rate. I still have great credit of great assets. But there’s two sides of this coin. Would you rather pay more income tax or would you rather pay a slightly higher rate to get your mortgage? And typically, when we do these alternative type deals, we only do it for a one or two year term because our goal is to always get that borrower back into a more traditional lending situation.

Credit is king

Todd Veinotte: [00:31:35.92] But credit is king here with all of this, right? I mean, if a lender, I’m assuming, doesn’t have the credit, then they’re going to have more of a challenge? Yeah, kinda starts with that, does it not?

Clinton Wilkins: [00:31:44.89] Credit is super, super important. And that’s one of the cornerstones of mortgage lending. But for those borrowers who don’t have great credit, there still are solutions. So when we talk about stated income and we’re going to an alternative lender, alternative lenders are also great at helping consumers that don’t have great credit. So typically, if your credit’s not as good, if you’ve gone through a bankruptcy or a consumer proposal or if you have some current credit issues, if you owe income tax, an alternative lender would consider you up to a maximum of 80 per cent. So it’s similar to the amount that you can borrow when you do a refinance, whether it’s a refinance or whether it’s a purchase. Typically, it’s a maximum of 80 per cent. But if your situation is maybe even harder, then a little bit off of what the borrower could get at the at a bank, sometimes you need a little bit more skin in the game. So maybe they’ll only lend you 75 per cent of the property value, or maybe they’ll only lend you 65 per cent of the property value. But I think for us looking at the income, the assets and the credit, we can make a plan. And oftentimes when we’re doing these alternative type of lending transactions, it’s a Band-Aid until we can get the borrower on to another lender, sometimes we’ll just do a six month term and then we can take them out and get them back into a more traditional lender. We see it all the time. And those are the borrowers that we really love helping as well. Probably over 10 per cent of our business we’re helping these borrowers that need a little bit of a helping hand.

Buying your first home in 2021

Todd Veinotte: [00:33:11.83] What about closing costs? We know one with a new purchase closing costs are,

Clinton Wilkins: [00:33:16.24] Are really super, super important. Typically, it’s just legal fees penalty from the existing mortgage, discharge fee from the existing mortgage, and maybe the appraisal. So the closing costs are pretty low when we’re talking about a refinance or a renewal. And maybe when we come back from the break, we can talk a little bit about buying a home. I know there’s lots of consumers that are probably listening that their dream in 2021 is to buy their first home. And we can talk a little bit about that.

Todd Veinotte: [00:33:46.45] Yeah, we’re going to get to that. So just before that, the per cent wise, you don’t pay that. There’s a big fee when a new purchase, deed-transfer tax, that’s the big one. Right? That’s two per cent or?

Clinton Wilkins: [00:33:55.39] In HRM it’s 1.5 per cent of the purchase price. And that is only when you buy a home, when you refinance, that doesn’t apply in Nova Scotia. In other provinces, they do have a different scheme on how their deed transfer tax works. It’s tied more into what the mortgage balance would be. But in Nova Scotia, you only pay the deed transfer tax when you buy a home.

Todd Veinotte: [00:34:18.91] Exactly. Okay, when we come back, as mentioned, we’re going to talk new purchases. We’ll be back with Mortgage 101.

Todd Veinotte: [00:34:28.01] Welcome back to Mortgage 101 Your Guide to Homeownership with Clinton Wilkins and myself Todd Veinotte, we’ve been talking a lot about debt, but we also did not want to leave you out there listening who may want to get into the homeownership game for the first time in 2021. It’s January. And this is a good opportunity, right?

Clinton Wilkins: [00:34:46.94] I think it’s a great time to own a home. I don’t think there’s ever been a better time than there is right now.

Todd Veinotte: [00:34:51.29] Why do you say that?

Clinton Wilkins: [00:34:52.58] Well, I think that, you know, a lot of people were locked down during COVID and, you know, they were locked down in a home that might not have been the best suited. Maybe they already own a home already, and they want to buy another home. I think there’s a great time to talk about that. But maybe you’re renting and you have an apartment and you’re like, I can’t do another lockdown, slow down in the space that I’m in now. So I think there’s some great motivation and I think there’s been no better time than 2021 to own a home.

Todd Veinotte: [00:35:23.84] Well also with vacancy rates at one per cent or whatever, they’re skyrocketing rents now. Makes sense, doesn’t it?

Clinton Wilkins: [00:35:29.81] The Tenancy Board obviously put in some rules back dating to September to protect tenants. But when you own your home, you can really pave your own path and you’re really going to control your future. The other great thing around homeownership is property values are increasing. So you’re going to build some equity. And while you own that home, you’re also going to pay down the debt. So that’s going to increase your net worth.

Todd Veinotte: [00:35:55.05] How much money should people, I guess it depends on what they’re going to purchase and their income is, but what type of money should people have in the bank before they even think about this?

Clinton Wilkins: [00:36:03.72] While the minimum down payment in Canada is five per cent on the first $500,000. Our rule of thumb in terms of closing costs is to have another three per cent. Within that three per cent, one and a half of that, so half of that would go to deed transfer tax and the other one and a half per cent would go to legal, property tax adjustment, oil, propane, moving hookups, inspection, stuff like that. So when we’re talking about maybe buying a $200,000 house, if you should have eight per cent, that’s sixteen thousand dollars.

Mortgage insurance and borrowed down payments

Todd Veinotte: [00:36:36.86] Can people borrow that money?

[00:36:39.77] Yes, Flex down to still exist. CMHC will not insure a mortgage with borrowed down payment, but there’s two other insurers in Canada, so they will insure a mortgage if you borrow the funds for your down payment. The funds could be borrowed from the Nova Scotia Down Payment Assistance Program. They could be borrowed from a line of credit, credit card, a loan. Borrowing funds is an option, but you’re going to pay a slightly higher insurance premium because it’s a riskier deal to the insurer. The other option, we love the bank of mum and dad. So that’s considered owned funds. The bank of mum and dad is involved in a lot of transactions we’re doing. Sometimes they’re gifting a portion of the down payment. Sometimes they’re gifting it all. Sometimes they’re just helping with the closing costs. And the lenders love that as well because they know that they’re going to have some support from family. And it also enables borrowers to get into homeownership maybe when they might not have been able to before. Or maybe they didn’t have that savings, the savings in place.

Gifting down payments or large sums of money

Todd Veinotte: [00:37:40.79] But if somebody just comes up with $17,000 out of the blue, there’s compliance rules there?

Clinton Wilkins: [00:37:47.84] So we have to get a 90 day history on the funds. And that’s for anti-money laundering. The federal government requires us to get 90 day history on where the funds have come from. So if there have been any large deposits in the account or in the investments, we need to track that back and we need to provide the history. Sometimes people will sell assets like sell a car or sell an investment. You know, get a gift. We need to get the paper trail to support that 90 day history of those funds.

Todd Veinotte: [00:38:13.88] So if it’s beyond the three months, then it doesn’t matter?

Clinton Wilkins: [00:38:16.97] Once the money’s been in your account for three months it’s your money.

Todd Veinotte: [00:38:19.44] It’s your money. So there’s no question. If you get 20 grand, 20 G’s, it’s been there for six months, you’re not going to ask where it came from. It’s been in that bank account.

Clinton Wilkins: [00:38:25.64] We’re not going to ask. The times that we do start asking some additional questions, if we do have a 20 year old that has $100,000 in the bank. How did that 20 year old get those funds? That’s unusual.

Todd Veinotte: [00:38:36.71] Does it happen?

Clinton Wilkins: [00:38:37.16] It does happen. And the lenders do ask the questions we need to justify because it’s very unusual for a young person to have a lot of money. So typically that either came from selling an asset, working in state and saving the funds or gift. Chances are a 20 year old doesn’t have enough lifetime to save $100,000 from working. We need to have a little bit of justification that goes along with that application because it’s for compliance and it’s about risk management. They want to make sure that those funds did not come from proceeds of crime.

Job changes and your mortgage

Todd Veinotte: [00:39:08.91] So when it comes to people’s employment, what if somebody has been working somewhere they just changed jobs, or it happens a lot, or perhaps they’re considering a change of employment and they think, well, maybe this might not be the time to purchase. I’ve got the money in the bank, but my employment history is going to change. What advice do you give people?

Clinton Wilkins: [00:39:30.24] If the employment history changes we typically have no problem with it as long as we can disclose it to the lender up front. They may want your job offer and they may also want a current letter of employment and they’re probably going to call your employer. It happens that we have borrowers that are on probation and we can get an exception. But obviously, we’re asking for an exception, it better be a pretty strong file and we see borrowers that change jobs all the time. The real key is you either need to be guaranteed hours or you need to be on a salary if you’re changing jobs and there’s no guarantee, that’s a real tough one. Typically, any borrower that doesn’t have guaranteed income, we need to have a two year average of their T4s. So they need to work two full tax years before we can consider that income. And of course, there’s exceptions to every rule, but by and large, that’s what’s required.

Multiple borrowers

Todd Veinotte: [00:40:21.76] Okay, at some point when people come in as couples or whatever form that takes, what about two on the application, sometimes if one doesn’t have good credit, then maybe that might not be advantageous. However, they may need that income. How do you balance all of that?

Clinton Wilkins: [00:40:40.88] So, you know, it really comes down to looking at the income, assets and credit for every borrower that’s going to be on the file. If we have one borrower that doesn’t have great credit and we need the income that we need to really justify that credit situation. The minimum credit score for the Canadian Mortgage and Housing Corporation to get an insured mortgage today is 680. So if that borrower does not have a 680 credit score, they cannot have an application go to CMHC. But luckily, the other two insurers may entertain it if the other borrower’s credit is very strong and we can fix any of the credit issues on that borrower with the majority of the income, we can likely get the file done. But we still need to have everything fixed in terms of the negative stuff. And the credit score needs to be reasonable, like it needs to be like 620, 630, 640, 650, 660 for us to really get that that deal done. If, for some reason the credit score is below that, then it’s really an application that would go for alternative lending and the minimum, minimum down payment for alternative lending is 20 per cent down. But obviously the more negative the file is, the more skin that borrower is going to need in the game. It’s pretty amazing to me, though, sometimes we see borrowers that want to do an application at five per cent down and they get turned down or whatever, and we’re like, we can’t make it work at five per cent down, but if you can come up with 20 per cent down, I think I can make it work. Miraculously, people come up with funds, you know, they come up with funds from savings or they come up from the funds from a gift. You know, borrowers are very motivated, especially if this is going to be their primary residence.

Buying a rental property for your first home

Todd Veinotte: [00:42:19.85] Just quickly, rental, is that a good option? I guess it would depend for first time homebuyer.

Clinton Wilkins: [00:42:24.65] Yeah, we have lots of borrowers who want to buy rental properties and a lot of our existing clients, we talk to them all the time about buying rentals. The minimum down payment for a rental property is 20 per cent. Typically, we have our clients with a maximum of five properties that are rentals and will finance a single family up to a four unit through our residential channel. Beyond having five properties and four units per property, so that would be 20 units total, anything beyond that would then need to go to commercial.

Merry Debtmass — time to review those finances

Todd Veinotte: [00:42:56.82] Okay, before we wrap, let’s do a wrap on what we talked about in Merry Debtmass, just some quick pointers for those who were just tuning in or are hearing this portion of the show. What are some of those key points you want people to know about when it comes to debt?

Clinton Wilkins: [00:43:10.11] I think, Merry Debtmass is really synonymous with January. I think coming into 2021, it’s just so important to think about all of your finances. When we talk about Merry Debtmass, we really talk about refinance and you can refinance up to 80 per cent of the market value of your home. I think that we’re going to see more refinances this year, specifically because the property values are up and the interest rates are down. So I think the borrowers should certainly think about refinance. And I think getting rid of that consumer debt this year is going to be important. So look at what you owe on credit cards, the lines of credit, loans. Typically, those interest rates are higher than what you’re able to get on a mortgage. And I think we really need to break down the barriers and the misconception around refinancing, because I think having the debt in the best vehicle, it’s not about creating more debt, it’s about getting what the best possible debt and the best possible situation you can be in in 2021.

Todd Veinotte: [00:44:05.41] How do people get hold?

Clinton Wilkins: [00:44:06.27] Check us out online, TeamClinton.ca/Radio, lots of great information there. And, you know, check us out. And I think using an unbiased mortgage professional this year is going to be more important than it ever has been. And check us out or check out another unbiased mortgage professional in your area.

Todd Veinotte: [00:44:25.23] And we’re back next month.

Clinton Wilkins: [00:44:26.37] We’ll be back in February. We’re going to be talking about love your home and thanks for tuning in everybody.

Todd Veinotte: [00:44:31.71] Absolutely. Mortgage 101 Your Guide to Homeownership with Clinton Wilkins and myself, Todd Veinotte. We’ll see you next time.

If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.