“House prices in Canada will probably fall in the coming year or two, but any comparison  of the American market of 2006 reflects a deep misunderstanding of the credit landscapes of the pre-crash environment in the US and today’s Canadian market.

The Canadian housing market has more distinguishing attributes that separate it from the pre-crash US market. Yes, the debt-to-income ratio in Canada just broke the American record set in 2006, but comparing the three years heading into the US crash to the past three years in Canada reveals that the debt-to-income ratio in Canada has been rising at half the speed seen in the pre-crash US market. Even more important than the amount of debt is its quality. The distribution of the credit score in Canada has not changed dramatically in the past four years. That is very different than the experience seen in the US in the four years heading into the recession.

In the US an astonishing one-third of mortgages taken out in 2005 and 2006 were in negative equity position, and more than half had less than 5% equity. In Canada, the negative equity position is nil, and only 15-20% of new originations have an equity position of less than 15%.

In a final analysis, not all is well in the Canadian housing market. Home prices are overshooting their fundamentals, mainly in large cities such as Toronto and Vancouver. The recent slowing in sales activity will probably be followed by price adjustments in many cities across the country. But the Canada of today is very different than a pre-recession US. Therefore, when it comes to jitters regarding a US-type meltdown here at home, the only thing we have to fear is fear itself.”

Transcript of Video Blog:

Hi everybody. Rowan Smith from the Mortgage Centre. I want to talk today about credit, specifically someone that doesn’t have a reporting credit score. I had a client call me this week who has tons of assets. They ran two different companies. The companies, the companies not her, have fantastic credit. The companies themselves have several hundred thousand dollars in clear assets cash. Now, she came into her bank before she spoke to me and the bank looked at her and said, “I’m sorry, we can’t help you. You don’t have a credit score.” She said, “Why not? I’ve got all these assets.”

Well, assets don’t report on your credit bureau. It doesn’t matter if you have $10 million in the bank. The credit bureau is about just that: credit. They want to specifically see that you know how to manage monthly payments without missing them, without falling into arrears or getting write-offs. If you’ve been paying cash your whole life for something I applaud that and think that that’s fantastic.

You haven’t had to borrow to live most of your life, certainly not the trend in Canada. Unfortunately, it’s not great for borrowing because you have no proof that you have a capacity to make payments or to manage a debt at all even though you’ve managed your savings fantastically. How do you get out of this trap?

First off, go and get a credit card. If you’ve got good assets and you’ve been paying everything with cash then your credit score will be nil for the most part. Apply to get a Visa. Start with that. Do you have to use it all the time? Not necessarily. Use it from time to time, make sure you pay it off. Try to keep that limit over $1,000, though. Ideally you want to get up over $5,000 because when the credit lenders look at you, especially if you’re applying for a mortgage, they want to make sure you can handle a payment that’s more than $50 a month.

If you’re looking to build and establish credit start with one card. You might want to get a couple. Don’t go crazy. 10 of them is not better than three or four and it just has more chances that one of those payments will get forgotten. Establish that score, get going on it, and then after a couple of years, or realistically even just one year of on time payments and reporting history, we should be able to get you into something.

That will establish that much needed credit history for vehicle loans, vehicle leases, commercial loans, all that type of thing.

If you need any help with this or if your bank is telling you you can’t get a Visa even though you’re offering to put your own money up as security I have a solution for you so please give me a call. It’s Rowan Smith from the Mortgage Centre.

Transcript of Video Blog:

Hi, everybody. Rowan Smith from the Mortgage Center. I want to talk today about self-employed people and what the banks want to see from you in terms of the income documentation.

Like everybody else, they want to see notices of assessment to prove that you’re filing your income-tax, as in you have no arrears, and they want to see how much your filing on there.

But what about somebody who’s been a plumber for 25 years and finally decides to go out on their own. They go out on their own and they’re making way more money, but they’ve only been doing it for a year and a half.

Here’s the thing, that’s a tricky situation for a bank. The bank wants to see that you’ve got a two-year track record of income. But if you were employed back then and now you’re self-employed, how do they make the connection?

Now, not all banks, but several of them have a much more open idea here. What they’ll do is they’ll look at your historical earnings as a plumber, or whatever your job was. As long as you transitioned into self-employment in the same industry doing the same thing they’ll use an average of income over those years, including your start-up years, but also including your years as a salaried employee.

This is particularly important for a guy who’s been self-employed for only one year but has been doing something for 25 years. Often times they move to self-employment not because they were foolish but because they saw there was a lot more money to be made if they were the boss rather than just collecting a salary.

So, if you know somebody in this circumstance, someone who’s been told, “You haven’t been in business long enough,” but they’ve been doing the same job for a very long time, have them contact me. It’s Rowan Smith from the Mortgage Center.

Transcript of Video Blog:

Hi, everybody, it’s Rowan Smith with the Mortgage Center. I’m here to talk about biweekly payments and why they pay your mortgage down faster.

Now, I want to use a nice simple example to show you why this works, because it’s no magic and it has nothing to do with just making more frequent payments. You are, in fact, paying extra money when you pay a biweekly accelerated and you’re paying it down quickly.

So, here’s how it works. Let’s use a nice round number of 1,000 dollars. If that was your monthly mortgage payment, you would pay 12 times a year, you’d pay 12,000 dollars throughout the year. But if you were paying biweekly accelerated, they chop that payment in half.

So, 500 dollars times, times how many? Well, there’s 26 biweekly payments in the year. So, there’s not 24. People often confuse that, because they assume 12 months, 24 payments. There’s not. There’s 26 biweekly payments throughout the year.

It’s like when, if you’ve ever had a paycheck that comes in every 2 weeks, and then, twice a year, you’ll receive a paycheck, but you won’t have the corresponding obligations. It’s almost like found money. But it’s not. It’s just because the biweekly payments are 26 times throughout the year.

So, 26 times 500 is 13,000. So, like I said, on monthly, with 12,000. On biweekly, you’re at 13,000. So, you’re actually paying 1,000 dollars or one full extra payment per year. That has an effect of shaving several years off your mortgage. Depending on 25 or 30 years, it’s anywhere between 4 and 5 years that it knocks off right off the top.

So, if you want to pay it down a little bit quicker, accelerated, or biweekly accelerated, is the way to go. If you’d like that, and you know somebody else would like to pay down their mortgage faster, have them contact me.

This is Rowan Smith from the Mortgage Center.

Transcript of Video Blog:

Hi everyone. Rowan Smith at the Mortgage Center. Going to talk today about my favorite topic and probably my most popular one on all of my blogs, former marijuana grow ops. I want to talk about a specific program that’s come out for these because in most of my prior posts I’ve described what’s required when you’re financing a grow op. I’m going to do so today and cover the new program.

First and foremost, if you’re looking at a property that’s a former grow op it must be fixed. It must already be fixed. It’s not something that you’re going to be fixed, it has to be repaired and what we call remediated. If it’s not remediated your really only choice is to either purchase the property in cash or to purchase the property through a private lender. Usually the rates are much higher in those circumstances.

Let’s assume that the home is fixed. How do you prove that? First off, if you walk into your average bank, Scotia Bank or TD or something, you’re probably going to get declined right off the get-go if you announce that it’s a former grow op, even if it was a former grow op 10 years ago. If it shows up on the property condition disclosure statement or in any of the documentation it was a former grow op, and the seller’s under an obligation to report that, then it will probably be declined in most circumstances.

There are some lenders that I work with that offer the same rates as all the other financial institutions who have a much more open mind about former grow ops. They just want to make sure that they’re fixed and that there’s no potential problems in the future. Here’s what they want to see. First off, environmental air quality testing. Cost between $1,500 and $2,000 depending on where you get it done. There’s a couple of firms that I’d highly recommend over the rest because they’re more widely accepted amongst the financial institutions. If you need that information contact me.

You need the air quality testing. What they’re looking for is they want to see if there’s mold in the air and spores and whatnot. That will ensure that it’s a livable property. Depending on the city you’re in you may also need to get a re-occupancy permit. The city may have pulled the occupancy permit if it was a busted former grow op. Not all places are on-board with this system, though, so please speak to me if you think that may be an issue.

If the occupancy program is not in place then you’re also going to require, third, is going to be a letter from the city that confirms that your property confirms to all municipal bylaws. That’s essentially the same thing as the occupancy permit but a lot of times, in some cities, they don’t pull the permit. They’re not going to issue a letter that says the permit was never pulled. What they’re going to do is give you a comfort letter instead that says the property does not infringe on any bylaws.

Certain municipalities will also want some sort of letter from the electrical company saying things have been set back up and hooked back up to code. Again, you need to speak with me depending on the municipality you’re in. The bottom line here is that I don’t recommend trying to get these properties financed on your own. Chances are you’re going to walk in there and they’re going to either laugh you out of the property, out of the building, or they’re just not going to treat you with due respect, they’re not going to take it seriously.

Several former grow ops do have great value. They’re perfectly fine homes, especially when the grow op was out in the back garage, but to the banks if it’s in the garage or in the house or five years ago or last week, fixed or not, it’s a former grow op until you bulldoze it. That’s just the current state of the law right now.

The new program I’m talking about, effectively, if a property has been a former grow op more than five years ago and we can document that it’s been fixed and has been lived in for that period of time I have one financial institution which will waive a lot of those additional requirements I looked at. They may still want a full appraisal on the property and they’re still going to make sure you qualify under all normal guidelines. They’re still going to charge you full discounted rates but they’re not going to ask for that expensive air quality testing which often is the deal killer for many people.

Again, property must be fixed, environmental air quality, occupancy permit if it got pulled, if it did not get pulled comfort letter from the city, any other municipal bodies such as the hydro company that explains what’s been done, and chances are you’re going to need a full appraisal in all circumstances regardless. If it’s been over five years, we can chop that list down by a big amount, make it much more simple.

If you or someone you know is looking into a former grow op don’t go walking into your bank alone. Please call me. I can at least offer you solutions and suggestions on how to get this approved. There is no fee for my service so please call me. I’ll help you out. It’s Rowan Smith at the Mortgage Center.

Transcript of Video Blog:

Hi, everybody. It’s Rowan Smith from the Mortgage Center. I want to talk today specifically about lines of credit. More importantly I want to talk about lines of credit that you want to keep but you maybe want to renegotiate maybe the mortgage in front of it. This is something that comes up from time to time.

Let me give you an example. Suppose you had a $100,000 mortgage on your $500,000 home. But you also had a $100,000 line of credit from a different institution. When you’re first mortgage comes up for renewal and you want to renew it, your choice is to stay with that institution or replace that mortgage amount dollar for dollar from another institution.
Now, to do that you need the permission of the line of credit company that’s issued that line of credit. They have to grant, what’s called a grant priority or offer priority agreement allowing the new mortgagor to go in front of them on title.

Now, this becomes problematic when someone just wants to renew but they want to move from one bank to another bank. In that case you often can’t, it’s not as simple as just a renewal. And unless you’re keeping every single feature of the mortgage the same, the amortization, the remaining amortization and what not, then it can be switched over.
But if you want to get an extra five grand for some small renovations or you want to borrow some money to pay off a car loan or what not, in order to do that you have to get rid of that line of credit. That doesn’t mean that you can’t set up a new one with the new institution, it just means that that existing one will have to be collapsed as part of it.

If you have any questions about this or you want to know if there’s a way to work around in your situation, because there are examples where you can do the mortgage without redoing the line of credit, please give me a call. It’s Rowan Smith from the Mortgage Center.

Transcript of Video Blog:

Hi, everyone. Rowan Smith from the Mortgage Center. I got a call today about a client who wanted to do some renovations on the home when they bought it. And they said to me, “But I don’t have the money for doing the renovations I’d like it built into mortgage. Is that possible?” Yes, there’s a few different ways to do it. One of the most common programs is “Purchase plus Improvements”. And under that program, the way it works is, you borrow money.

I’m going to use a nice, round example, you buy a $100,000 home, you put five percent down, that’s $5000. You have a $95,000 mortgage, but you want an extra $10,000 to do some renovations.

The way that it works is you have to first get a quote from a contractor that explains what the work he’s going to be doing and the cost that it’s going to be to get that work done. You’re going to present that when you do your mortgage application.

So, when you write the offer you need to get a contractor in there right away to that quote because your mortgage broker is going to need it in order to submit it with your deal to the bank to ask that extra $10,000. You won’t be able to get it afterwards, so you have to do it as part of the transaction.

So, they send in the application, see, and the bank looks at it and makes sure that the work that they’re doing is appropriate for that price. And if they approve it then the full amount of the mortgage gets advanced to the lawyers office.

But you don’t get your $10,000 to do the renovations. You have to do the renovations first, provide receipts, provide proof of the work that’s done, often times they’ll require an appraisal to go through to make sure that the work is in fact done. And then they’ll release the dollars to you.

So, if you’re doing a big ren, you wanted $40,000 or something like that, you can still do it, but you have to have the means to come up with the cash to pay trades and materials in advance and then the mortgage money will come to you later.

So, yes, you can use the line of credit where you can borrow money from family and friends but you have to have a way to get the work done first and then they release the funds. Now, is there times when you can get around this? Yes, but generally you need 20 percent or more down payment or set up a structure like that.

If you’re someone in either of those situations with less than 20 percent down or more than 20 percent down and you want money for renovations while you’re buying the home or after give me a call. From the Mortgage Center I’m Rowan Smith.

Transcript of Video Blog:

Everybody, Rowan Smith from the Mortgage Centre. I’m here today to talk again abut a topic that seems very popular among my blogheads, which is former marijuana grow ops. Can you finance them, or how to finance them? The answer is, “Yes, you can,” and the way to do it is this. There’s typically going to be extra underwriting that’s going to be required. Not all banks are going to be willing to do that…

So what are those extra things that are going to be needed? Well, you’re going to need, first and foremost, an air quality test. Now, an air quality test is when an environmental firm, preferably one by the name of Medallion Homes, goes into the premises and takes an air sampling in an area where the grow op was and an area where the grow op wasn’t, so they have an ambient and a control comparison and they provide you with a breakdown or a readout of mold content or chemical content, if any.

Now, in most cases, this comes back fine. But if there had been significant moisture problems, it may not come back so good. In those cases, they’re going to need some additional remediation before the bank will fix it or will finance it, rather.

So, first things first, you need an air quality sample. Now, I said use Medallion Homes. Why? Just generally, that’s the firm that most of the places around me in Vancouver, that’s who they want to do it. There’s also Pacific Environmental that’s accepted by a couple of them. You want to stick with Medallion Homes where possible because it will give you the maximum choice of lenders.
Now, which lenders are they that are going to actually do this? Are they some high rate lenders? Absolutely not. There are credit unions and charter banks that will do it. Some of them simply will not look at your deal if it’s a former grow op under any circumstances. That’s the reality of the banks. They can choose to lend when they want to.

So first, air quality. Second, you’re probably going to need a full appraisal. Not every time, but in most cases, they want to make sure that the market value of the home has not adversely suffered as a result of it being a former grow op. Because there is a stigma that’s attached to it.

Lastly, you’re going to want to have something from the city that confirms that either A, occupancy is still in place or the occupancy permit has been reissued. Or C, that there’s a comfort letter from the city that says the property is conforming to all bylaws. So what that letter is saying is, “Yes, we know it was a grow op, but the current owner has taken the steps to get the property back to the level where it’s safe for human habitation.”

Now, most grow ops actually aren’t that bad. They’re not always like they show on the news with black mold and chemicals running rampant through the property. Oftentimes, it’s confined to a single room. So in those circumstances, they still need the same level of due diligence. It doesn’t matter if it was 1 plant or 500 plants that was in that grow op. If it’s a busted grow op, the stigma will remain until the home is bulldozed that it was a former marijuana grow op.

Now, if you or somebody you know is looking to finance one and having problems getting financing, that doesn’t mean it’s impossible. It just means you’re going to need the three things air quality, appraisal and a comfort letter from the city or the occupancy permit or what have you.

Now, that varies from municipality to municipality. Not all municipalities pull the occupancy permit, others do. There are different types of programs out there. So if you’re in Surrey, or you’re in Mission, or you’re in Vancouver or Coquitlam, the rules will change. It’s important to be dealing with somebody who knows what the rules are in that unique market and can get a bank that will finance it as well. For the Mortgage Centre, I’m Rowan Smith.

Video Transcript:

Hi, everybody. It’s Rowan Smith from the Mortgage Center. It’s been a while since my last post and I wanted to provide an update on a couple of things that I get constant questions about in our market place.

Back in April when the changes the government handed down took effect it got rid of what most people thought would be all of the 35 and 40 year amortizations. So the question is, is a 35 or 40 year amortization still available? Short answer, yes. Now, the longer answer is a little more complicated…

For example, who is it that offers that? Well, if you’re dealing with TD Canada Trust, Scotiabank or one of the large chartered banks, they’re not going to be able to offer you an amortization of 35 to 40 years. There are a couple of credit unions that will do it and there’s a lot of non banks, for instance, broker channel lenders they will also do a 35 or even a 40 year amortization.

So, what’s the criteria? First, you need 20 percent down. The reason for this is, a bank, once they put 20 percent down, cuts CMHC or mortgage insure out of the equation for most part. In that circumstance they can take on as much risk as they want, more they can offer, whatever product they want, because the government isn’t involved in that transaction any longer.

So, if you want to get a 40 year amortization or a 35 year amortization you can do so if you have 20 percent down.

Now, why would you do that? You could be in your fifties thinking, “Well, I’m not going to live until I’m 90 years old.” It’s not about that, it’s about cash flow. Many times people that opt to take a 35 or 40 year mortgage are doing so on an investment property or they want to have a property that’s positively cash flow each month or perhaps it’s because there’s a sick situation in life and they need to minimize the minimum “out of pocket” each month.

So, if you were somebody you know needs a 35 to 40 year amortization, I can help them, please send them my way. It’s Rowan Smith from the Mortgage Center

Transcript of Video:
Hey everyone, Rowan Smith with the Mortgage Centre. I want to address a question a client came up with me on with the credit bureau. And that is, he wanted to know why his extra payments weren’t reflected.

The credit bureau is just a recording of debt payment history and how much your minimum payments are on a particular line of credit, and how your credit history is in terms of your repayment over the long last five years.

If your payment is only $300 on your credit card, and let’s say you owe $10,000. Typically, a credit card would be three percent of balance, so your payment should be $300. So are you getting further ahead by paying $450? Not on a credit bureau, it doesn’t really have a noticeable impact.

A bigger impact would be reducing the balance that you have, that will increase your score better. But even though you pay extra every month, it has no bearing on your actual credit score. It’s simply a factor of do you pay it on time, and what percentage of that credit facility is utilized.

So if you have a $10,000 line of credit, and you’re at $10,000, even though you’re making every payment on time, that’s more harmful than having a $20,000 credit card with only $10,000 outstanding. To that account, you’re only 50 percent utilized.

And again, it’s just a computer algorithm behind this, so the computer system can only make judgments based on that criteria. For the Mortgage Centre, I’m Rowan Smith.

Transcript of Video:
Coming soon!

Transcript of Video Blog:

Hi everybody, it’s Rowan Smith with the Mortgage Centre. We’re going to do something a bit little different here this week. It’s where I’m going to answer one of the most common questions I receive, which is “Can I roll my other expenses into my mortgage?” So let’s look at exactly how that would go down.

In this example, we’ll take a look at down payment, how it’s structured in an individual mortgage deal. For the purposes of illustration, let’s assume $100,000 purchase price — just to keep our numbers nice and round.

Now, in Canada, the maximum amount of financing that you’re allowed to get on a property is 95 percent. So in order for you to roll any additional costs into that, you would have to roll more than 95 percent.

So if someone says to me, “Can I roll my car payment into my mortgage?” They’re faced with the same set of constraints — $100,000 purchase price, 95 percent or $95,000 financing. But they ask me, “Can I roll the $10,000 a month loan into my mortgage?”

We end up with a situation where the client is rolling more than 100 percent of the value of the home. This is not allowed. So are there ever situations where you can roll costs into your mortgage? The answer is “Yes, you simply have to have a more substantial down payment.”

Consider this example — a client purchasing a $100,000 home, has $50,000 down payment, 50 percent down. That same person asks, “Can I roll my $10,000 car loan into my mortgage?” The answer in this case is “Yes.” They are well below the maximum Canadian level for financing.

But there’s a second twist to this. Are they below the 80 percent rule? Now the 80 percent rule, anything over 80 percent financing — so borrowing more than 80 percent triggers CMHC fees on a sliding scale. If you were to borrow as high as 95 percent, those fees could be upwards of $3,000. So it may not make sense in those circumstances to do so.

If somebody is looking at buying this piece of property and rolling their closing costs in, in addition to it, they can do so up to 80 percent. Now they can go beyond 80 percent, but then they start incurring CMHC fees. But again, the maximum of 95 percent applies. You can’t roll more than 95 percent into the financing.

As usual, if you have any questions, feel free to call me anytime. I’d be happy to look at your specific situation, see if there’s a way we can perhaps optimize the other debt that you have — whether it be through a consolidation loan or through consolidating it into your mortgage.

The important thing is not to look at it as “Am I rolling it into my mortgage?” But rather, “Am I able to put less down and keep money back to pay these other expenses?” For the Mortgage Centre, I’m Rowan Smith.

Transcript of Video Blog:

Hi, everybody. I want to address a very common myth, and that’s that people think their variable rate mortgage, because it is open to fluctuations, is in fact an open mortgage. That’s not the case. There’s a lot of confusion as to what is an open mortgage versus a variable mortgage versus a closed mortgage or a fixed mortgage.

So, a fixed mortgage, well, obviously, your rate is fixed. You don’t have to worry about fluctuations in prime rate. For whatever the length of your term, whether it’s one or five years, your rate is fixed. Now, all fixed rates that we get here are closed. Meaning, to break that term — if you sell the home or you try to refinance during the term — you’re going to owe.

Typically, the penalty is the interest rate differential, the greater of the interest rate differential or three months of interest. Now, if rates have fallen substantially, you can expect the penalty to be quite large because it will be the interest rate differential.

If you do a search, some of the other blogs that I’ve done on penalties, you’ll see that there’s — I’ve explained the method of interest rate differential penalty calculation at a little more length. But in any case, if you have fixed — closed in almost every single case.

If it’s not a fixed or closed, then you’re going to be looking at a variable rate. Now, there is two types of variables — variable open and variable closed. The only difference between the two, other than rate, is that variable open can be paid off at any time with no pre-payment penalty whatsoever. The variable closed typically has a three-month interest penalty.

So you say, “Well, why would anybody take variable closed when they can take a variable open?” The difference is rate. Variable opens typically right now run you anywhere from prime plus 0.8 to prime plus 1.0. Prime rate is 3%, so that means your rate would be 3.8% to 4%.

Compare that to a variable closed mortgage will be at prime minus 0.75 or prime minus 0.8. So you’re looking at almost a point and a half to two-point spread between the two. So you can be paying 2.25% or you can be paying 3.75%. Clearly, the variable closed is a better deal if you’re going to hold the property for any length of time.

So people often come to me and say, “Well, I intend to sell it maybe in the next year or something.” Well, even in those cases, oftentimes the savings over a year-long period of time of getting the lower variable closed rate is better than paying no penalty, but paying a much higher rate as you go along.

So the important distinction here is that your open mortgage, you want to figure out how long are you going to hold that property? Open and avoiding a penalty may sound nice in principle, but if you actually end up spending thousands of dollars more over the life of the mortgage, why bother avoiding the penalty just to pay more monthly? For the Mortgage Center, I’m Rowan Smith.

Transcript of Video Blog:

Hi everybody, it’s Rowan Smith with The Mortgage Center. We’re going to try something a little different this week, and we’re going to cover something that’s very commonly requested of me, which is details on debt servicing, what is it, and how to calculate it.

So there’s two main ratios that the lenders use when they’re calculating debt servicing. The first is GDS for gross debt service, and the second is TDS for total debt service. Gross debt service or GDS, which is the first ratio we look at includes your principal, interest, taxes and heat, and what we’re trying to do is a find a percentage of your gross income that this equals.

So principal and interest is effectively your payment, so whatever your payment is plus taxes and heat. A good rule of thumb is that GDS should not exceed 35%. I mean, yes, there’s exceptions to this, but that’s a good base-line if you’re trying to figure a rough equivalent of what you can afford.

Total debt service on the other hand includes not only principal interest, taxes and heat, but also any other debt payments or obligations. Now not everything is included in there, and we’ll get to that later, but all debt payments. A good rule of thumb is that TDS should not exceed 42%.

Exceptions up to 44% and beyond are available, depending on someone’s credit score and the particular program that we’re using and applying for. Of course the amount of down payment you have also plays into this, so it’s important to know exactly what rule you’re working at before you go in and apply for something.

So let’s go through GDS, we’ll actually look at how to calculate it. This is a scenario, the common scenario that you see. Someone has an e-mortgage payment that’ll work out to $2,500 a month, and that couple makes $120, 000 a year, combined, both of their jobs, so $10,000 a month. Property taxes are $3, 600 per year, that works out to $300 per month, and heat is $100 at most lenders.

There’s a few that’ll use $85, some of that will use less, that’s conned over. It’s not a big difference, $100 should be used for roundness. Strata fees on the townhouse they’re buying are $330 per month. Now currently, banks only use 50% of the strata fees to count towards GDS and TDS, you have to remember that when you’re working through it. If it is a strata property, meaning an apartment, townhouse, condo, something like that, and there are fees, then only 50% of those are used.

So here’s the calculation. You make $2,500 payment, plus $300 taxes, plus $100 heat and $165 strata fees equals $3,065. $3,065 divided by the $10,000 monthly income, as expressed as a percentage, is 30.65% gross debt service, or GDS, which is within my 35% guideline I gave you. So based on GDS, yes this would be approved.

TDS is a little bit different, similar but different. Same scenario, same payments and all that. The only difference is that last line there, since the client has a $300 per month car payment, and those $8,000 in credit card debt. So here’s the calculation, and I want to note here, for credit cards, most banks use 3% of the amount owing to determine what we’re payment will be. So in this case, $8,000, 3%, $240 will count towards TDS per month. You notice I like to convert everything to monthly numbers, because that tends to be how most people run their budgets, so it’s how I do that.

$2,500 mortgage payment, plus $300 taxes, $100 heat, $165 strata fees, plus the $300 car payment and $240 equals $3,605 per month counted towards their $10,000 income. $3,605 divided by $10, 000 equals 36.05% TDS, total debt service. Again, it’s within my range of 42% that I gave you. So the two ratios to keep in mind are GDS and TDS, 35, 42 respectively. There are exceptions, but for now those are important.

A couple of notes on TDS. People often say to me, “Well wait, if I’ve got monthly bills, what about my cable bill and my cell phone bill?” No. Cable bills, cell phone bills, telephone or Internet bill are not included. Other things not included in monthly RSP contributions, but the loans are; car insurance, house insurance, repairs and maintenance to property and income taxes.

Now you may say, “Well wait, a lot of those are really important expenses, things that I have to pay for” but that’s why we only use 42% or 44% of the TDS calculations. The other 56% to 58% are for those other expenses that everybody else pays. Some things that must be included in TDS and that often people wish were not: child support payments, alimony or spousal support payments, any other loan, credit card, line of credit or monthly debt obligation, car lease payments. If you’re making another year on account, then a year of payment may count towards TDS.

Now it’s a lot of numbers. If you have any questions, feel free to give me a call. I’m happy to run through your situation for free. Everybody’s is different, and it takes some experience to know what numbers actually have to be included, what are not included. So again, for The Mortgage Center, I’m Rowan Smith.

Transcript of Video Blog:

It’s Rowan Smith from the Mortgage Centre. I want to address a very common myth that I hear about, that clients will come to me and say, “Well, I’m a first-time home-buyer, so don’t I get a better rate on my mortgage?”

The answer is absolutely not. Everybody is going to get the same rate based on their credit score and their income and whatnot. Where you get the benefits as a first-time home-buyer is being A, being able to take money out of your RRSP, tax-free, up to $25,000 per person on your first purchase of your home.

And you’re allowed to avoid the Property Transfer Tax, up to a purchase price of 425. Anything over 425 but up to 450, there’s a sliding scale. If you’re buying something over $450,000, it doesn’t matter if you’re a first-time home-buyer or not, you’re going to pay the full Transfer Tax.

The government, I guess, looks at it and says if you can afford a home that that’s expensive, that you shouldn’t be getting the tax break to being with.

So again, just as a recap, RRSPs can be used tax-free for your down payment, and Property Transfer Tax. Those are the only benefits, the only things you get to avoid as part of being a first-time home-buyer. There is no special incentive on rate, I’m sorry. For the Mortgage Centre, I’m Rowan Smith.