Did Prime go up?

No.

Did my Variable rate mortgage rate change?

No, not unless your variable rate mortgage is with TD.

So the Bank of Canada did not raise rates?

No, in fact they are more likely to lower rates than increase them.

But TD raised rates?

Yes, but only by 0.15% and only for variable rate mortgage holders.

If you are a TDCT client in a variable rate mortgage at TD then read on…

Update RE TD Variable Rate mortgage rate changes

On Nov 1st, 2016 TD announced their own private rate increase affecting just one exclusive group of TD clients. Specifically those in a TD variable rate mortgage.

While the rate adjustment may be minor, at only 0.15%, it is still a change, and nobody likes change.

Does this mean immediate action should be taken?

No.

Does this mean that going variable was a mistake?

No.

Is this change going to stick?

At this point (Nov 11, 2016) no other lenders have followed suit, and TD is effectively all alone on this move. As such TD may back down and reverse the increase.

For those of you with a discount of Prime -0.60% or better, you are still laughing. Such a discount leaves you with a net rate of 2.25% which can only be matched by a two year fixed rate product. And if you have such a discount the odds are you have been enjoying it for some time now as well. Racking up the savings!

For those whose net rate has risen above the 2.25%, keep in mind some of the key features of the TD variable rate product in particular that may make it worth the extra few dollars: You did not wind up in this product with this institution by accident.

• The TD variable is a Fixed Payment product, which means your effective payments will remain the same. This is meaningful if the subject property is an investment property as well – no change to your monthly cash-flow.

• The TD variable is nearly the only product that can be converted into a 3-year fixed from day one. (Currently ~ 2.29% – but this is just an example, not a suggestion for action) There are greater options with TD than with other lenders.

• The pre-payment penalty to break this mortgage is only ~0.50% of the balance, about nine times less than the penalty to break out of their 5-year fixed product (which 60% of clients wind up doing). Keep this in mind before locking in, I am not locking my TD variable in anytime soon.

• TD is the only lender that gives you 12 months to find a new home to move the mortgage over to and grants a full penalty refund…even if they give you a deeper discount on the new mortgage! That’s right, a full penalty refund up to a year later, and possibly and even deeper discount!

What is this increase costing me?

A 0.15% increase results in an interest-expense cost increase of $12.50 per $100,000 outstanding.

Got a $300,000.00 mortgage? Then your payment just went up by zero, but the interest component within your payment did go up by $37.50 per month.

Is the Bank of Canada going to raise Prime too?

Highly unlikely by all current estimates.  Said estimates being made by people far smarter than myself.

Will TD raise their own Prime rate further?

This also seems unlikely.

Will TD lower their Prime back to 2.70% to get in line with ALL of the other financial institutions?

Perhaps if TD gets enough pressure from clients they will – and this is where I suggest a call to your TD branch to express your displeasure with them being the only bank to do this to their clients. And only to their mortgage clients.

Do you have an unsecured credit line? Car loan, TD credit card? All good they left the interest rates the same on those. What’s that, you carry no high interest debt? Yep, TD is sparing the folks with consumer debt and only coming after those with mortgage debt. A touch ironic for sure.

If you wish to call TD directly. Look up the local branch here, press ext ‘250’ and this will connect you to the branch manager directly.

This is a phone call that may result in some action – or you can always call your local Dominion Lending Centres mortgage professional for more information.

There are great advantages to having business for self. There are many extremely successful business owners that live great lifestyles but don’t have to pay for medical, all because they have great tax write-offs that bring their income down to a low tax bracket. The other side of this is that these great benefits actually make these same business owners work hard to qualify for a mortgage, all because their income is significantly reduced on paper. These business owners know that there is advanced planning involved in being able to qualify for conventional financing.

According to Statistics Canada, in 2015 there were about 2.7 million people self-employed in Canada which is about 14% of the total population of the country. These statistics reflect people that are continuing on in maintaining a significant lifestyle financed by self-employment and being able to be counted as such. In other words, being self-employed is a viable way of making income. It just doesn’t fit very well in the conventional lending “box”.

In order to fit in the conventional lending “box”, there is a measure that lenders require that each mortgagee(s) (the person(s) applying for the mortgage) must meet. Some of the documents that self-employed have to provide for the lender are two most recent years of tax returns that don’t always accurately reflect the actual take-home that a self-employed person has. Tax deductions related to business often reflect meals to rental space to credit card interest, etc. The result is that the income the self-employed business owner shows on their tax return is a significantly lower figure than what they actually take home. However, the “box” requires that tax returns show the required income to justify the mortgage.

So, how does one show enough income when they are self-employed? The following points are suggestions on strategies on how to plan ahead and be prepared when you, as someone who is self-employed, are ready to move forward in arranging a mortgage for property purchase.

• The easiest way to plan is to write off fewer expenses in the two years leading up to the property purchase. Yes, this means you will pay more personal taxes. However, your income will be higher which will easily qualify you for the mortgage amount that you are looking for.
• Set your finances up through a certified accountant. Many lenders want to see self-employed income submitted through a professional rather than doing it yourself. The truth is that the time that you spend doing your own taxes will not be as efficient both financially and time wise as a professional. A certified accountant knows what to look for and has enough experience to understand the tax implications. Make sure you discuss with them what your goals are so that they can set up your taxes appropriately.
• Choose your timing carefully. If you are leaving on an extended holiday or sabbatical within the two years previous to purchasing, your two-year average income is not going to be great. Take all the time off that you want AFTER your purchase. Plan your timeline with INCOME in mind.
• Ask your Mortgage Broker about STATED INCOME. There are options with some lenders to State your income. This is based on you being in the same profession for at least two years previous to being self-employed. The lender looks at the industry and researches the mean income of someone in that same profession within a reasonable amount of time. STATED INCOME is a complicated approach to showing income. However, your Dominion Lending Centres Mortgage Professional will know what questions to ask and how to negotiate this kind of proof of income. Documents such as bank statements, showing consistent deposits, will be requested by the lender.
• BANKRUPTCY. Although some business people see bankruptcy as a viable option to get out of a bad deal and regroup, lenders generally do not like bankruptcy. Having said that, some lenders will overlook this if there has been consistent and excellent credit since the time of bankruptcy and you have been fully discharged from the bankruptcy for a specific time period. Make sure you keep ALL Bankruptcy papers easily available along with your discharge papers.
• Be prepared for higher interest rates. Lenders offer discounted rates to those that fit in the “box”. Those that are not conventional are seen as a risk and, therefore, are applied to a higher interest rate. There also could be lender fees attached to the mortgage.
• Offer a larger down payment. Lenders are somewhat handcuffed to the insurer when there is less than 20% down payment on a property purchase. But if you offer more than 20% down payment, depending on the lender, their flexibility increases and it is up to the lender or even the branch if they want to take you on as a client.
• As a last resort, you can do private financing. Even though it is an expensive option, it could result in the mortgage you are looking for. Rates are higher and there will be lender/brokerage fees. However, you could be in a private mortgage for 12 months or even less, whereby giving yourself time to improve your credit (if need be) or topping off a two year self-employed period to set yourself up to show STATED INCOME to the lender. The whole point of private financing is to use it as a short term solution for a long term plan.

Being self-employed does not mean that you have to show enough income on your T1 General in order to qualify for a mortgage. There are many factors involved in showing income when you are self-employed. And every lender has different guidelines as to how they view self-employment. If you are self-employed, plan accordingly and make sure you are well set up to show that the lender that you are a desirable candidate for a mortgage.