Mortgages and Corporations.

If you are a self-employed client who owns your own business, you may have chosen to set that business up as a corporation. This means the business operates as essentially its own person. They have income through business revenue and expenses from marketing costs, materials, office space, etc.

When it comes to getting a mortgage, there are a few benefits to putting that mortgage under the corporation instead of your individual self:

1. Corporations tend to pay a lower tax rate than the personal income tax rate and only pay taxes on the net business income.
2. When it comes to qualifying for a mortgage, a lender can look at the business income or the personal income they pay themselves.
3. Adding the net business income or the personal income from year 1 and year 2 and dividing it by two is the income a lender will associate with that borrower. Keep in mind though this will also be affected if there is more than one shareholder.

There are two ways one can go about this type of corporate mortgage, depending on if the corporation is the operating company or acts as the holding company.

Mortgages and Operating Companies

As with any mortgage, there are considerations and more-so when looking to put your mortgage under your corporate umbrella. While you would essentially qualify as though you’re buying a property in your name, your application will be packaged much differently to the lender. You would be instead qualifying as a corporation with a personal guarantee from yourself.

It is also possible to do a mortgage deal under your personal name but utilize both personal and corporate income. Lenders can do this by looking at both personal T1 generals and respective NOA, plus you can qualify by looking at the Net Business Income before taxes as seen on company financials.

When it comes to getting a mortgage under an operating company (versus a holding company), you may encounter limitations with the lenders that provide this type of deal. You would be looking at an Alt A (B Lender) to finance this particular mortgage, which may come with higher interest rates.

Mortgages and Holding Companies

When it comes to getting a mortgage under a holding company, you will find things are a bit easier. Having a mortgage under a holding company, versus the operating company, essentially removes any limitations or liability from the operating company with regards to the mortgage.

However, to be eligible, you must meet the definition of a Personal Holding Company (PHC) or Personal Investment Company (PIC) per the bank. This is typically considered “a Canadian incorporated entity established by an individual or individuals for the purpose of conducting investment activities, which can include holding real estate, and/or investments. Personal Holding or Investment Companies, and the owner of the PHC or PIC must qualify personally, and sign as covenantor”.

Some additional reasons to consider a mortgage under a corporation or holding company include:

1. If your intent is to flip properties rather than hold them as rental revenue, it might make sense to consider holding it through a corporation
2. You have retained corporate profit that can be used to buy a property without withdrawing money personally and incurring personal tax.

The most important thing to note when going this route for a mortgage is that ALL DIRECTORS listed on the corporation MUST also be listed on the mortgage application. For a sole proprietorship, this is easy as there is typically only one director, however on larger corporations this is something to consider.

For some individuals, the benefits might not be enough to convince them to put their property under the corporation but for others, it may be the perfect solution.

To find out how your income would be viewed by a lender if you have your business set-up as a corporation, contact a Dominion Lending Centres mortgage expert.

Written by MY DLC Marketing Team

How to Pay Off Your Mortgage Faster.

When it comes to homeownership, many of us dream of the day we will be mortgage-free. While most mortgages operate on a 25-year amortization schedule, there are some ways you can pay off your mortgage quicker!

1. Review Your Payment Schedule: Taking a look at your payment schedule can be an easy way to start paying down your mortgage faster, such as moving to an accelerated bi-weekly payment schedule. While this will lead to slightly higher monthly payments, the overall result is approximately one extra payment on your mortgage per calendar year. This can reduce the total amortization by multiple years, which is an effective way to whittle down your amortization faster.

2. Increase Your Mortgage Payments*: This is another fairly simple change you can execute today to start having more of an impact on your mortgage. Most lenders offer some sort of pre-payment privledge that allows you to increase your payment amount without penalty. This payment increase allowance can range from 10% to 20% payment increase from the original payment amount. If you earned a raise at work, or have come into some money, consider putting those funds right into your mortgage to help reduce your mortgage balance without you feeling like you are having to change your spending habits.

3. Make Extra Payments*: For those of you who have pre-payment privileges on your mortgage, this is a great option for paying it down faster. The extra payment option allows you to do an annual lump-sum payment of 15-20% of the original loan amount to help clear out some of your loan! Some mortgages will allow you to increase your payment by this pre-payment privilege percentage amount as well. This is another great way to utilize any extra money you may have earned, such as from a bonus at work or an inheritance.

4. Negotiate a Better Rate: Depending on whether you have a variable or a fixed mortgage, you may want to consider looking into getting a better rate to reduce your overall mortgage payments and money to interest. This is ideally done when your mortgage term is up for renewal and with rates starting to come back down, it could be a great opportunity to adjust your mortgage and save! This may be done with your existing lender OR moving to a new lender who is offering a lower rate (known as a switch and transfer).

5. Refinance to a Shorter Amortization Period: Lastly, consider the term of your mortgage. If you’re mortgage is coming up for renewal, this is a great time to look at refinancing to a shorter amortization period. While this will lead to higher monthly payments, you will be paying less interest over the life of the loan. Knowing what you can afford and how quickly you want to be mortgage-free can help you determine the best new amortization schedule.

*These options are only available for some mortgage products. Check your mortgage package or reach out to me to ensure these options are available to you and avoid any potential penalties.

If you’re looking to pay your mortgage off quicker, don’t hesitate to reach out a Dominion Lending Centres mortgage expert today! They can help review the above options and assist in choosing the most effective course of action for your situation.

Written by MY DLC Marketing Team

10 Questions to Ask Your Home Inspector.

While home inspections might not be the most exciting part of your home buying journey, they are extremely important and can save you money and a major headache in the long run.

In a competitive housing market, there can sometimes be pressure to make an offer right away without conditions. However, no matter how competitive a market may be, you should never skip out on things designed for buyer protection – such as a home inspection.

You may have a good eye for décor and love the layout of your potential new home, but what is under the surface is typically where headaches can lie. We have all heard the expression “don’t judge a book by its cover” so why would you make the most important purchase in your life without checking it out?

Below are a few key questions you can ask your home inspector to ensure that you are getting a complete and thorough inspection:

1. Can I see your licence/professional credentials and proof of insurance?
2. How many years of experience do you have as a home inspector?
   • Note: Make sure they’re talking specifically about home inspection and not just how much experience they have in a single trade.
3. How many inspections have you personally completed?
4. What qualifications and training do you have? Are you a member of a professional organization? What’s your background – construction, engineering, plumbing, etc?
5. Can I see some references?
   • Note: Don’t just ask for references, be sure to follow up with them. Ask the clients how they felt about the home inspection, did any issues crop up down the line that they were not made aware of, etc.
6. What kind of report do you provide? Do you take photos of the house and specific problem areas (if any) and include them in your report?
7. What kind of tools do you use during your inspection?
8. Can you give me an idea of what kind of repairs the house may need?
   • Note: Be hesitant if they offer to fix the issue themselves or are willing to recommend someone cheap. Home renovations and repairs are one area you should never skimp on.
9. When do you typically do the inspections?
   • Note: Ideally you want a home inspector operating full-time and can view the house during the day to inspect all areas, especially the roof.
10. How long do your inspections usually take?

While hiring a home inspector may seem daunting, it will be the best few hundred dollars you ever spend. There is no price on peace of mind!

Written by MY DLC Marketing Team

In an Aggressive Move, the BoC Hikes the Policy Rate by 25 BPs.

Holy Smokes, The Bank of Canada Means Business

If there were any doubt that the Bank of Canada wanted inflation to fall to 2%, it would be obliterated today. In a relatively surprising move, the Bank hiked the overnight policy rate by 25 bps to 4.75%, and an equivalent hike will follow in the prime rate. Fixed mortgage rates had already leaped higher even before today’s move as market-determined bond yields have risen in the wake of the US debt-ceiling debacle. Now variable mortgage rates will increase as well. The central bank is determined to eliminate the excess demand in the economy.

“Monetary policy was not sufficiently restrictive to bring supply and demand into balance and return inflation sustainably to the 2% target,” the bank said, citing an “accumulation of evidence” that includes stronger-than-expected first-quarter output growth, an uptick in inflation and a rebound in housing-market activity.

I had thought that the Bank would want to see the May employment data and the next read on inflation before they resumed tightening, but with the substantial May numbers in the housing market, the Governing Council jumped the gun.

The Reserve Bank of Australia did the same thing earlier this week. But their economy was already softening. On the other hand, the Canadian economy grew by a whopping 3.1% in the first quarter and is likely to surprise on the upside in Q2, boosted by a strong rebound in housing. If the correction in housing is over, then the Bank has failed to cool the most interest-sensitive sector in the economy. Governing Council fears that inflation could get stuck at levels meaningfully above the 2% target.

Bottom Line

The next Bank of Canada decision date is a mere five weeks away. While we will see two labour force surveys and one inflation report, the odds favour another rate hike before yearend. The BoC concluded in their press release that, “Overall, excess demand in the economy looks to be more persistent than anticipated.”

No doubt, if the data remain strong over the next several weeks, another 25 bps rate hike is likely in July. Deputy Governor Beaudry will flesh out today’s decision in his Economic Progress Report tomorrow.

Written by DLC Chief Economist Dr. Sherry Cooper

Don’t Be House Poor.

Having the biggest and best home on the block sounds great – but not if it is at the expense of your life and monthly finances! Be smart about your budget and avoid buying a home at the very top of your pre-approval value, which might lead to cash flow issues and being “house poor” down the line.

Home Expenses

When it comes to your home, it is more than just your purchase price and mortgage cost. While you might be able to afford to buy a $800,000 home, can you also afford the maintenance, property taxes, utilities and more?

When it comes to your home expenses and overall monthly budget, the goal is that the costs to maintain your home do not exceed 35% of your total monthly income.

Monthly Budget

To help you keep track of your finances, consider breaking up your monthly budget into the following categories:

• Housing – mortgage payments, property taxes, utilities, etc.
• Transit – car payments or transit passes, gas, maintenance, etc.
• Debt – payments to credit cards, lines of credit, etc.
• Savings – your long-term savings for retirement, etc.
• Life – food, vacations, fun, medical, childcare, etc.

From there, you would want to look at how much you spend on each category. The below is a good rule of thumb:

• Housing – 35% of your monthly income
• Transit – 15% of your monthly income.
• Debt – 15% of your monthly income
• Savings – 10% of your monthly income
• Life – 25% of your monthly income

By spending too much on housing, you are forced to sacrifice in other areas of spending such as your life or savings, but it is better to be life RICH than house POOR.

If you’re not sure what you should budget for your new home, or have questions about making your home costs more affordable (such as changing your mortgage payments), please don’t hesitate to reach out to a Dominion Lending Centres expert today!

Written by MY DLC Marketing Team

Unlocking Home Equity: The Benefits of a Reverse Mortgage vs a HELOC.

Do you need help to meet your retirement income needs? With rising inflation, accessing sufficient cashflow for your desired lifestyle can be challenging. However, with over 70% of Canadians owning their homes, tapping into home equity can be the cashflow solution you need.

Tapping into Home Equity

If you want to remain in your current home, a home equity line of credit (HELOC) and a reverse mortgage are two of the most popular ways to access your home equity.

Take out a HELOC. HELOC lenders typically allow you to access up to 65% of the value of your home. You can borrow money as needed (based on an agreed-upon amount) and are only required to make minimum monthly interest payments on the amount taken out. Unlike traditional mortgages, there is no obligation to make scheduled payments towards the line of credit, and you have the freedom to repay the line of credit at your convenience.

Get a reverse mortgage. Another way to access the equity in your home is through a reverse mortgage. If you’re a Canadian aged 55 or better, the CHIP Reverse Mortgage by HomeEquity Bank allows you to access up to 55% of your home’s value and turn it into tax-free cash. There are no monthly mortgage payments while you live in the home; the full amount only becomes due when you move or sell your home. You can receive the funds as a lump sum or in regular monthly deposits. You can use the cash for any financial needs, including health care costs, home renos, debt consolidation or lifestyle expenses.

Advantages of a reverse mortgage

One of the biggest advantages of the CHIP Reverse Mortgage is that there are no monthly payments, but there are many more! Here are some of the other benefits of the CHIP Reverse Mortgage:

• Simplified underwriting. The proceeds of the CHIP Reverse Mortgage are not based on income but on your age and the value of your residence.
• No need to requalify. A regular HELOC from a bank may subject the borrower to continuous credit score checks over time, affecting the ability to access a HELOC when needed.
• Spousal impact. The death of a spouse does not affect a reverse mortgage, unlike a HELOC, which may trigger the bank to review the credit score and income of the surviving spouse.
• Rate stability. For fixed-rate terms, the reverse mortgage rate remains locked for the term, while HELOC rates fluctuate with the Bank of Canada’s prime rate, potentially increasing borrowing costs.

Contact your Dominion Lending Centres mortgage expert to learn how the CHIP Reverse Mortgage can help you boost your retirement income.

Written by our Lending partner HomEquity Bank

Second Mortgages: What You Need to Know.

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them. Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage.

The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

• The ability to access a large loan sum (in some cases, up to 90% of your home equity) which is more than you can typically borrow on other traditional loans.
• Better interest rate than a credit card as they are a ‘secured’ form of debt.
• You can use the money however you see fit without any caveats.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

• Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
• Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to speak to your DLC Mortgage Expert! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

Written by MY DLC Marketing Team

The May Employment Report Softened Two Days After The BoC Raised Interest Rates.

May’s Softer Labour Market Data Ended The Longest Run Of Job Gains Since 2017

Ironically, the May Labour Force Survey showed a modest slowdown two days after the Bank of Canada surprised the markets by raising interest rates. Employment was little changed in May, down 17,300, all for youth aged 15 to 24. All other age cohorts enjoyed continued rapid job gains. Total hours worked fell 0.4% but were up 2.2% year-over-year.

Wages rose by 5.1% last month, a moderate decline from the prior three months.

The employment rate—the percentage of people aged 15 and older—declined by 0.3 percentage points to 62.1% in May. This reflected strong population growth in the month (+83,000) and little change in employment.

Following five consecutive months of a low 5% unemployment rate, the jobless rate rose 0.2 percentage points to 5.2% last month. This was the first monthly increase since August 2022. According to the median estimate in a Bloomberg survey, the figures missed expectations for a gain of 21,300 positions and a jobless rate of 5.1%.

The data for May concluded the most extended streak of job growth since 2017, during which a total of 423,900 new roles were generated. However, the extent of job losses was deemed statistically negligible, failing to counteract even half of the employment gains observed in April. Despite these losses, wages continued to rise robustly, marking over a 5% annual increase for the fourth consecutive month. This underscores a persistently tight labour market and a resilient economy, undeterred by escalating borrowing costs.

Bottom Line

Following an unanticipated robust beginning of the year, Canada’s employment market demonstrated dynamism well into the second quarter. A confluence of factors, including a tight labour market, solid economic growth, persistent inflation, and a resurgence in housing market activities, propelled Governor Tiff Macklem and his team to increase the overnight lending rate to 4.75% on Wednesday. This hike came after a previously announced halt in January. Policymakers perceived the enduring excess demand in the economy as “more persistent than anticipated.”

It seems improbable that the Bank of Canada would disrupt the interest rate pause that commenced in January merely for the 25 basis point interest rate increase. A single employment report exhibiting softer figures doesn’t constitute a new trend, especially considering that historically, the labour markets remain extraordinarily tight. Before the following decision on interest rates is due on July 12, we anticipate another jobs report, the May Consumer Price Index (CPI) report, and the Bank’s intensely scrutinized Business Outlook Survey. While we project a continued trend of softer data releases over time, it would likely require further unexpected downturns to derail plans for another rate hike in July.

Written by DLC Chief Economist Dr. Sherry Cooper