Blog Post

Using Common Spending Habits to Accelerate Mortgage Repayment

Katherine Martin • Oct 30, 2017

Whether you are looking to save a downpayment for your first home or you would like to pay down your existing mortgage just a little more quickly, the secret to getting ahead might just be in managing your spending habits.

Nestwealth , a Canadian wealth management company; who has a really good blog, recently released an article called “6 Common Spending Habits you Don’t Have to Follow”. The article has been published with permission below, have a read through their suggestions to see if you have any money you could use to either save that downpayment, or put down on your existing mortgage!

If you have any questions about mortgage financing, don’t hesitate to contact me anytime!

6 Common Spending Habits You Don’t Have To Follow

Our frivolous spending is often formed out of habit. And since habits are made up of actions we don’t realize we are doing over and over, it makes sense that our common spending habits are usually the hardest to identify and break.

But it doesn’t have to be that way.

Sometimes all you need is a gentle nudge from someone else to help kick those pesky spending habits to the side. Check out the top six common spending habits that you don’t (and shouldn’t) have to follow.

1. Treating yourself to lunch or dinner … every day.

Life is busy and sometimes it feels like it’s moving faster than we can keep up with. In those instances, it’s easy for us to grab lunch on the go or allow the takeout containers to pile up from dinners we simply didn’t have the time to make ourselves.

This spending pattern not only takes a toll on our bank account, but our health as well. You can alter this behaviour by planning your meals ahead of time, which can include treating yourself when necessary.

2. Charging a vacation to your credit card.

Oh how sweet life would be if we could afford endless vacation. That isn’t the case for most and yet, so many of us end up traveling on credit because it’s just so easy to do.

Breaking the habit here is simple. If you can’t actually afford to get there and have a good time, you shouldn’t be going in the first place. Sound depressing? It doesn’t have to be. Be realistic with your budget and start putting aside money in your vacation fund.

You will enjoy your time away so much more without the debt.

3. Impulse buying … everything and anything!

We’re all guilty of impulse purchasing. It’s how the retail business was built after all. It can be even more challenging to avoid when you’re in the company of friends and family that have the very same habit.

But sometimes we have to pull back and have that difficult conversation with ourselves where we admit that we don’t truly need that new shirt, shoes, or home accessory.

4. Paying for unused services.

So, you got stopped on the street and signed up for a membership to somewhere, for something — and never looked at it again. Or how about that gym membership you pay for every month … but never set foot in.

Don’t worry, it happens! What better time than now to cancel those memberships and redirect that money somewhere else — like back in your bank account.

5. Falling victim to fees.

It’s so easy to get caught up in the rush of doing things quickly and conveniently. More often than not, convenience comes at a price.

Think about how many times you’re cashless and fall victim to those pesky ATM fees, or maybe you overdo it on the e-transfers and gasp at your bank statement when you see how much that seemingly little convenience cost you.

Plan ahead by pulling the cash you need for the week and be aware of what these tiny habits are costing you in the long run.

6. Avoiding the small pleasures.

On the flip side of all that we’ve mentioned, it’s super important that you do in fact indulge in that latte, as opposed to desperately trying to save your way to wealth by avoiding the small stuff.

While this might seem counter-intuitive, we actually discuss the science behind this in more detail by breaking down the ‘latte factor’ in our podcast ‘The Smart Money’.

Start changing your spending habits now, so you can afford more in your future.

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Mail

Katherine Martin

Origin Mortgages

Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842

Why Downpayment Source Matters

By Katherine Martin • 01 May, 2024

If you’re looking to purchase a property, although you might not think it matters too much, the source of your downpayment means a great deal to the lender. Let’s discuss the lender requirements, what your downpayment tells the lender about your financial situation, a how downpayment helps establish the mortgage loan to value. Anti-money laundering Lenders care about your downpayment source because, legally, they have to. To prevent money laundering, lenders have to document the source of the downpayment on every home purchase. Acceptable forms of downpayment are money from your resources, borrowed funds through an insured program called the FlexDown, or money you receive as a gift from an immediate family member. To prove the funds are from your resources and not laundered money from the proceeds of crime, you’ll be required to provide bank statements showing the money has been in your account for at least 90 days or that you’ve accumulated the funds through payroll deposits or other acceptable means. Now, if you’re borrowing all or part of your downpayment, you’ll need to include the costs of carrying the payments on the borrowed downpayment in your debt service ratios. If you’re the recipient of a gift from a direct family member, you’ll need to provide a signed gift letter indicating that the funds are a true gift and have no schedule for repayment. From there, you’ll need to show the money deposit into your account. Financial suitability Lenders care about the source of the downpayment because it is an indicator that you are financially able to purchase the property. Showing the lender that your downpayment is coming from your resources is the best. This demonstrates that you have positive cash flow and that you’re able to save money and manage your finances in a way that indicates you’ll most likely make your mortgage payments on time. If your downpayment is borrowed or from a gift, there’s a chance that they’ll want to scrutinize the rest of your application more closely. The bigger your downpayment, the better, well, as far as the lender is concerned. The way they see it, there is a direct correlation between how much money you have as equity to the likelihood you will or won’t default on their mortgage. Essentially, the more equity you have, the less likely you will walk away from the mortgage, which lessens their risk. Downpayment establishes the loan to value (LTV) Thirdly, your downpayment establishes the loan to value ratio. The loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. So, if you’re buying a home for $400k, the lender can lend $380k, and you’re responsible for coming up with 5%, $ 20k in this situation. But you might be asking yourself, how does the source of the downpayment impact LTV? Great question, and to answer this, we have to look at how to establish property value. Simply put, something is worth what someone is willing to pay for it and what someone is willing to sell it for. Of course, within reason, having no external factors coming into play. When dealing with real estate, an appraisal of the property will include comparisons of what other people have agreed to pay for similar properties in the past. You’ll often hear of situations where buyers and sellers try to inflate the sale price to help finalize the transaction artificially. Any scenario where the buyer isn’t coming up with all of the money for the downpayment, independent of the seller, impacts the LTV. All details of a real estate transaction purchase and sale have to be disclosed to the lender. If there’s any money transferring behind the scenes, this impacts the LTV, and the lender won’t proceed with financing. Non-disclosure to the lender is mortgage fraud. So there you have it; hopefully, this provides context to why lenders ask for documents to prove the source of your downpayment. If you’d like to talk about mortgage financing, please connect anytime; it would be a pleasure to work with you.

Porting Your Mortgage

By Katherine Martin • 24 Apr, 2024

Porting your mortgage is when you transfer the remainder of your current mortgage term, outstanding principal balance, and interest rate to a new property if you’re selling your existing home and buying a new one. Now, despite what some big banks would lead you to believe, porting your mortgage is not an easy process. It’s not a magic process that guarantees you will qualify to purchase a new property using the mortgage you had on a previous property. In addition to re-qualifying for the mortgage you already have, the lender will also assess the property you’re looking to purchase. Many moving parts come into play. You’re more likely to have significant setbacks throughout the process than you are to execute a flawless port. Here are some of the reasons: You may not qualify for the mortgage Let’s say you’re moving to a new city to take a new job. If you’re relying on porting your mortgage to buy a new property, you’ll have to substantiate your new income. If you’re on probation or changed professions, there’s a chance the lender will decline your application. Porting a mortgage is a lot like qualifying for a new mortgage, just with more conditions. The property you are buying has to be approved So let’s say that your income isn’t an issue and that you qualify for the mortgage. The subject property you want to purchase has to be approved as well. Just because the lender accepted your last property as collateral for the mortgage doesn’t mean the lender will accept the new property. The lender will require an appraisal and scrutinize the condition of the property you’re looking to buy. Property values are rarely the same Chances are, if you’re selling a property and buying a new one, there’ll be some price difference. When looking to port a mortgage, if the new property’s value is higher than your previous property, requiring a higher mortgage amount, you’ll most likely have to take a blended rate on the new money, which could increase your payment. If the property value is considerably less, you might incur a penalty to reduce the total mortgage amount. You still need a downpayment Porting a mortgage isn’t just a simple case of swapping one property for another while keeping the same mortgage. You’re still required to come up with a downpayment on the new property. You’ll most likely have to pay a penalty Most lenders will charge the total discharge penalty when you sell your property and take it from the sale proceeds. The penalty is then refunded when you execute the port and purchase the new property. So if you are relying on the proceeds of sale to come up with your downpayment, you might have to make other arrangements. Timelines rarely work out When assessing the housing market, It’s usually a buyer’s market or a seller’s market, not both at the same time. So although you may be able to sell your property overnight, you might not be able to find a suitable property to buy. Alternatively, you may be able to find many suitable properties to purchase while your house sits on the market with no showings. And, chances are, when you end up selling your property and find a new property to buy, the closing dates rarely match up perfectly. Different lenders have different port periods Understanding that different lenders have different port periods is where the fine print in the mortgage documents comes into play. Did you know that depending on the lender, the time you have to port your mortgage can range from one day to six months? So if it’s one day, your lawyer will have to close both the sale of your property and the purchase of your new property on the same day, or the port won’t work. Or, with a more extended port period, you run the risk of selling your house with the intention of porting the mortgage, only to not be able to find a suitable property to buy. So while the idea of porting your mortgage can seem like a good idea, and it might even make sense if you have a low rate that you want to carry over to a property of similar value, it’s always a good idea to get professional mortgage advice and look at all your options. While porting your mortgage is a nice feature to have because it provides you with options, please understand that it is not a guarantee that you’ll be able to swap out properties and keep making the same payments. There’s a lot to know. If you’re looking to sell your existing property and buy a new one, please connect anytime. It would be a pleasure to walk you through the process and help you consider all your options, including a port if that makes the most sense!