A unique scenario occurred during the initial phase of the coronavirus pandemic. New mortgage lending reached all-time highs at chartered banks. Much of this was fueled by historically low-interest rates, thus, the majority of mortgages were renewals thanks to these lower numbers.
The Post-Pandemic World
The government has gotten a hold of the coronavirus’ tail since the dark days of spring 2020. Despite the surge in cases due to the Delta variant, more people have gained immunity to the sometimes fatal disease. As of November of 2021, nearly 74% of Canadians had received both vaccinations.
Though it’s unknown if another variant is around the corner, we seem to be moving into a post-pandemic world. This is an environment where housing prices have skyrocketed. Soon enough, the Bank of Canada could start raising interest rates to steady inflation.
It’s time to consider your plan of attack to obtain a mortgage. Here are a few tips to make this happen in a post-pandemic world.
Straighten Your Financial Situation
There’s a good chance the pandemic disrupted your finances in some way. Perhaps you lost a job, or your hours were severely cut. Unfortunately, you could have gone through your savings to battle a case of COVID. With the situation settling down, it’s time to straighten out your financial situation.
Here are a few things to work on.
- List your bills from smallest to largest. Create a snowball effect by devoting as much money as possible to the first payment. When that’s closed, move the funds to the next largest bill. Continue until they’re all paid off.
- Rebuild your emergency fund. Consider $1,000 at the minimum. Two to three months of savings is better.
- Work with your creditors to lower payments. This gives you a chance to quickly settle the account.
- Minimize your daily expenses. Reduce your utility bills, meals out, and other items that don’t have a significant return on investment (ROI).
- Consolidate your debt by refinancing your mortgage, or taking out a second mortgage or HELOC. This will reduce the amount of interest you are paying on your debt, by paying off your debt with a new loan with a lower interest rate.
Examine Your Debt-To-Income Ratio
Although you aren’t overdue on your bills and have a sufficient amount of funds it doesn’t mean you are automatically approved for a mortgage. One thing we examine at Cashin Mortgages is your debt-to-income (DTI) ratio. Generally, this is the amount you have on hand and how much is paid toward utilities, vehicles, rent, and other expenses.
Normally, your debt shouldn’t be more than twice your monthly income. This doesn’t mean you won’t be able to get a mortgage. Rather, your payment options and available interest rates become limited. Nevertheless, we work with you to obtain the best mortgage for your situation.
Never go with the first option when you shop for a mortgage in a post-pandemic world. You want to shop around for the best deals. Additionally, take a look at different payment options that fit your current income situation.
When speaking with your local bank about getting a mortgage, keep in mind that they represent only the bank they work for. Seek out the advise of a mortgage broker, to get the full picture of all of your borrowing options. If you’re financially secure, a 15-year mortgage is a better choice than a 30-year plan. Keeping your credit rating in good shape keeps interest rates low, so you will continue to have an advantage even when the Bank of Canada increases the percentages.
Examine Your Tax Liabilities Due to Accepting CERB Payments
One of the things that is reviewed when applying for a mortgage, is your tax liability with Canada Revenue Authority (CRA). The Canada Emergency Response Benefit (CERB) was launched in April of 2020 to provide an income safety net due to the pandemic. It provided up to $2,000 a month for workers who lose their income due to COVID. If you were overpaid, or not eligible, yet received CERB payments, you may be required to repay a portion, or pay additional tax on the amounts you received.
A visit with an accountant to review your tax liabilities for 2021, may be a wise decision.
If you received CERB funds, you still can start a mortgage application to see how much you qualify for. However, should the lender discover you were on the program, they may require assurances about future employment. In other words, they need proof you have returned to work; if not, then the application may be denied.
Refinancing a mortgage
The same situation occurs if you wish to refinance your mortgage at a lower interest rate. Here, you’re taking money out of your home’s equity to pay off debt or renovate the property. Thus, you pay off the existing mortgage and sign for a new one. Your application may be denied if you were on CERB. Check with your mortgage broker.
A renewal, which is offered by Cashin Mortgages, may not require a review of your income or any CERB payments you received. Actually, there my not be a need to provide proof of employment or income to qualify. You simply select the new term, sign the provided paperwork, and submit it back to our mortgage specialists.
Similarly, many lenders don’t require proof of income for a home equity line of credit (HELOC). Since this comes from the value your home has accumulated since your purchase, it acts more like a credit card than a loan. Similar to a renewal, you determine the amount of the HELOC and the payment terms and work with your mortgage agent to finalize the deal.
Don’t Go Overboard
The low-interest rates aren’t an excuse to overextend yourself when it comes to a home or mortgage. There’s no need to purchase a 3,000 square foot home when it’s you and your partner. Nor is there a need for a $2 million mortgage if your income is under $50,000.
Consider your needs, your available funds, and your DTI ratio when you start shopping for a home and mortgage. There’s nothing that stops you from moving from a small home to a bigger one at a later date if you need or want more space.
Overall, cover all the steps necessary to obtain a mortgage in a post-pandemic world. To start you out, contact one of our specialists at Cashin Mortgages to set up an appointment. We’ll review your DTI ratio and other factors to find the right home loan for your immediate or future needs.