November 19th, 2017 | by Paul Friesen | I find it Inspections
What is Polybutylene (Poly-B) Plumbing?
Poly-B is a gray plastic pipe used as a water supply line in your home. It was used extensively from the early 1970's through to the early 1990's. Believed to be an excellent material, it was also much less expensive than copper. This type of pipe was installed extensively in the early 1970’s until the early 1990’s. In the mid-80's, leaks were starting to be detected in homes with Poly-B plumbing. Leaks often occurred behind drywall and were not discovered until major water damage and mold had occurred. It is believed that approximately 700,000 homes were built in Canada with Poly-B plumbing.
So you ask – how do I know if my home was built using Poly-B plumbing? Your home inspector will check for gray plastic pipes wherever there is visible plumbing. The inspector will look in areas under sinks and at your water meter and hot water tank connections. One of the biggest issues with Polybutylene plumbing is that the pipes look good from the outside. However, it may be degrading on the inside and could burst at any time. There is no way to tell.
The original ssue with Poly-B plumbing was believed to be the fittings connecting pipes to one another. There were often made of plastic which deteriorated and leaked over time. Sometimes, the pipes were badly installed, or the fittings too tight which caused tiny fissures creating small leaks. Water pressure could also cause problems. Areas with high water pressure could experience ruptures in previously weakened joints. Copper fittings began to replace plastic ones, but the leakage issues did not dissipate. It was discovered that Poly-B pipes don't deal well with hot water or chemicals well and as such begin to disintegrate quickly. Polybutylene pipes should never be used in, or close to, hot areas, such as your hot water tank.
What do I do when something goes wrong?
From the outside, it is hard to tell what the condition of Poly-B piping is. As home inspectors, we look for noticeable repairs and incorrect installation. Unfortunately damage in this type of plumbing starts inside which is unable to be seen.
Inter NACHI (International Association of Certified Home Inspectors) recommends replacing Poly-B pipes with different piping, usually copper or PEX as there is typically little or no warning before leakage occurs. In addition to difficulties obtaining home insurance, the presence of Poly-B piping in a home, may deter buyers from purchasing it. While there are things that you can do to help prolong the life of this type of piping, most home inspectors recommend replacing the complete system.
How can I do to maintain my Poly-B plumbing?
If your home has Poly-B plumbing, replacement is virtually unavoidable. However, it might be possible to prolong its life by doing the following:
Change plastic fittings: Use of plastic fittings was less common in Canada than the United States, but if your Poly-B fittings are plastic, look into having a plumber replace them with copper or brass ones.
Don't over-crimp: Metal bands are used to hold pipes in place. Hairline fractures causing leaks can result from bands that are crimped too tightly.
Lessen the chlorine: If you live in an area of Canada that has high levels of chlorine, consider using a filter to remove chlorine from your home. Place the filter where the water enters your home to prevent it from running through your pipes.
Lower your water temperature: Overly hot water will result in faster deterioration of Poly-B popes. BC Hydro recommends a temperature no lower than 55 degrees Celsius. Anything lower than this may allow bacteria to grow in your hot water tank.
Lower your water pressure: Most home inspectors recommend that water pressure be kept between 40 and 60 psi. In addition to causing ruptures in pipes, high water pressure can damage your home's fixtures. Pressure-reducing valves can be used to keep the water pressure in your house at levels that will create less stress, and wear-and-tear, on your pipes and fittings.
How long will my Poly-B plumbing last?
Poly-B piping is often reported as starting to link approximately 10 to 15 years after installation. Your home inspector will recommend replacing it with more durable copper plumbing. Polybutylene is no longer approved for installation under the National Plumbing Code and any new builds will not have Poly-B plumbing in them. While replacing the plumbing system in your home is expense, it does affect the resale value of your home and may provide peace of mind, knowing that a more reliable plumbing system is less likely to result in burst pipes damaging your home and your treasured possessions.
What do I need to tell my home insurance company?
If your home was built between the early 1970's and early 1990's, your insurance company will want to know what type of plumbing is in your home. They are likely to want to know this information regardless of when your home was built. Insurance companies are reluctant to provide coverage on homes with Poly-B plumbing as losses from ruptures can be massive. It is possible that you will not be able to obtain insurance at all for a home with Poly-B or that your premiums and water damage deductible will be much higher.
If you experience water loss as a result of Poly-B plumbing bursting or leaking, it is likely that you will have a substantially increased premium and/or deductible upon renewal. It is even possible that you might not be offered a renewal by your current insurer.
When purchasing a new home, make sure you know what type of plumbing has been installed. This is where we come in. A licensed home inspector will be able to give you that information as well as the peace of mind that the plumbing is of good quality and in good condition. Knowing what type of plumbing is in the house will make purchasing decisions and shopping for insurance easier.
If your home has Poly-B piping, please discuss it with one of our Lower Mainland based, licensed home inspectors, and we will do our best to advise you. Poly-B plumbing will be flexible, gray and made of plastic and should have the code 'PB2110' stamped on it. Remember to look for it in areas where plumbing is exposed in your home.
Why Are Some Mortgage Rates Rising?
Fears over the COVID-19 pandemic and plummeting oil prices have caused mortgage rates to plummet to multi-year lows over the past couple of weeks. But now some lenders are actually starting to raise rates. Fixed rates on certain terms have been creeping back up, while some of the big banks have been quietly cutting their discounts on prime rate (which affects floating rates).
Scotiabank, for example, raised its published 5-year closed variable rate 60 percentage points on Saturday, from 3.45% to 4.05%.
A host of other lenders have also been slashing their discounts from prime by anywhere from 20 up to 75 basis points. At one lender, for example, a new borrower could have obtained a high-ratio 5-year variable mortgage at Prime – 1.00%, or 2.45%. Today, that same rate is now Prime – 0.25%, or 3.20%.
So, what’s going on? Fear has saturated the market to the extent that lenders are now concerned about liquidity and rising defaults, according to observers.“I think if you’re a bank, you’re scared of losses right now,” Shawn Stillman, founder of mortgageoutlet.ca, told CMT. “The banks are in this to make money, and if they don’t think that they’re going to be able to make money because all of a sudden their default rate is going to go up, then they’re going to protect themselves by raising rates.”
In addition to the potential for an increase in default rates, Stillman says that with more people facing temporary layoffs due to the coronavirus, more people will start drawing on their available credit. “If you’re a business and you have a line of credit, you’re drawing on that line of credit. If you have credit cards, you’re maxing out those credit cards. You are using your ability to borrow more money and it becomes a shock to the system,” Stillman said. Essentially the banks could face a growing run on available credit facilities, which could challenge their ability to finance all of that credit.
That’s one of the reasons why the Office of the Superintendent of Financial Institutions (OSFI) announced on Friday that it was lowering the capital requirements for banks, which would free up an additional $300 billion of lending capacity. Despite the Bank of Canada’s emergency rate cut on Friday, markets are still pricing in an additional 50-bps cut when the Bank meets next month. That will bring Canada’s overnight lending rate down to 0.25%.
Knowing this, banks are starting to increase the discounts from prime so that the economics of funding variable-rate mortgages continues to make sense. “We’ve seen these shock-and-awe rate moves before,” wrote Rob McLister, founder of RateSpy.com. “On October 6, 2008, in the midst of the credit crisis, TD shocked the market with a massive 100-bps rate increase to prime + 1.00%. It applied to new variable and HELOC customers. TD rates were below prime just days before.”
Advice for Mortgage Shoppers
For those in the market for a new mortgage, and who are leaning towards a variable rate, experts recommend obtaining a rate hold as soon as possible. “I would say act sooner rather than later. Basically, this is not a time to think,” said Stillman. “Lock it in now and if something changes your mind, you can change your mind. But there’s a good chance it’s not going to be available (in a matter of days).”
McLister advises the same, whether you’re shopping for a fixed rate or a variable.
“Fixed rates aren’t rising like variable rates, not yet,” he noted. “But there’s a risk they could. Get a rate guarantee soon if you need a fixed mortgage in the next four months.”
You're asking big money but your kitchen appliances are old...and they show it! If you spent a bit on new ones do you think you'd recover that cost in the sale? The answer is yes, even increase your sale price! Buyer's will negotiate downward but not nearly as hard when those sparkling new appliances catch their eyes..
Mar 6, 2020 - Bank of Canada Governor Stephen Poloz attempted to ease concerns yesterday that lower interest rates will further stoke overheated housing markets.
Poloz argued this week’s rate cut was needed to combat the risks posed by the current global health crisis, adding that the easing will in fact help stabilize housing markets.
“Not surprisingly, the threat to the global economy of COVID-19—the coronavirus—played a central role in our deliberations, and we are coordinating actively with other G7 central banks and fiscal authorities,” he said in a prepared speech on Thursday.
The 50-bps rate cut was in stark contrast to the cautious “wait-and-see” approach that the Bank had previously adopted as it held rates steady while dozens of central banks around the world were cutting rates to head off growing economic headwinds. This week’s rate move also flew in the face of Poloz’s own fears about further stoking heated housing markets.
Just two months ago, Poloz told BNN Bloomberg: “Should this housing rebound continue, we will be watching for signs of extrapolative expectations returning to certain major housing markets—in other words, froth…It can be very unhealthy when the situation becomes speculative.”
But extraordinary times call for extraordinary measures.
“…Risk management demands a prompt and sizable policy response to larger shocks to ensure that the economy remains well anchored. Governing Council agreed that the downside risks to the economy today are more than sufficient to outweigh our continuing concern about financial vulnerabilities,” he told a Toronto audience.
“Indeed, declining consumer confidence would naturally lead to reduced activity in the housing market. In this context, lower interest rates will actually help to stabilize the housing market, rather than contribute to froth.”
Capital Economics’ senior economist Stephen Brown hinted at this in a research note published last week.
“While [the Bank of Canada] has been worried about the effects of looser policy on house prices, it may become more welcoming of a further boost to housing wealth if equity values continue to plummet.”
That seems to be Poloz’s thinking. Even if people are losing confidence (and money) as a result of rising coronavirus infections and plummeting stock markets, they can at least be reassured that the value of their home is continuing to rise (so long as you’re not a first-time buyer looking to enter the market).
“Further, we expect that the B-20 mortgage lending guidelines will continue to improve the quality of the stock of mortgage debt,” Poloz added.
Remember, these are the same lending guidelines (for uninsured borrowers) that OSFI is proposing to loosen as early as this spring, pending a review of public consultation.
More Cuts Are on the Way
While Poloz is defending the Bank’s larger-than-expected rate cut this week, the easing is still far from done, at least as far as the markets are concerned.
Canada’s 5-year bond yield continued to fall on Thursday, coming within 0.36 percentage points of its all-time low. The continued panic over the growing fallout of COVID-19 has markets pricing in up to 75 bps of rate cuts by October, with the next cut coming as early as April.
By the time all is said and done, this week’s 50-bps rate cut may look like just a warm-up.
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SURREY, BC – A combination of unseasonably high demand and declining supply reinforced Fraser Valley’s real estate market in November.
The Fraser Valley Real Estate Board processed 1,405 sales of all property types on its Multiple Listing Service® (MLS®) in November, an 11.7 per cent decrease compared to sales in October 2019, and a 36.7 per cent increase compared to the 1,028 sales in November of last year.
Darin Germyn, President of the Board, says, "Some listings are seeing a lot of activity depending on location and property type. REALTORS® are reporting more showings, higher traffic at open houses and even some multiple offer situations, which is atypical for the time of year.
"For our region, a balanced market is when 12 to 20 per cent of active inventory is selling. In November, 33 per cent of our supply of townhomes sold, as did 29 per cent of Fraser Valley condos; indicating that the supply of attached properties isn’t keeping up with demand."
For the Fraser Valley region, the average number of days to sell an apartment in November was 40, and 38 for townhomes. Single family detached homes remained on the market for an average of 48 days before selling.
Smoke Alarms 101
Smoke alarms are an important defense against injury or death in house fires, so make sure your smoke alarms are in good shape to help warn your family in case of emergency.
- Location is key! Smoke alarms should be installed in every bedroom, outside every sleeping area, and on each level of the home. Follow the manufacturer’s instructions for placement.
- The two primary types of smoke alarm technology are ionization and photoelectric. Ionization alarms are more responsive to flames, while photoelectric alarms are more sensitive to smoldering fires. For the best protection, both types or combination units should be installed.
- Never remove the unit’s battery or disconnect the alarm to stop or prevent annoying alarm bells such as those caused by cooking.
- Replace the batteries at least once a year. Test each unit monthly using its test button and replace the battery if necessary. Many alarms now come with 10-year batteries that can’t be replaced, but should still be tested monthly to make sure they work.
- Smoke alarms that are wireless or hard-wired to the home’s electrical system should be interconnected. If one alarm is triggered, all of the others will sound as well. Hard-wired alarms, interconnected or not, should be installed by a licensed electrician for safety and proper operation.
Remember, a non-working smoke alarm is no better than no alarm at all!
Your Roof & Drainage Checklist
You may not think about your roof and gutters very much, if at all. But it’s important to give them a checkup and some TLC to prevent big problems down the road.
- Clean leaves and other debris from gutters to prevent clogs and pooling water. You may need to do this more than once a year if you have very heavy leaf fall.
- After cleaning the gutters, run water through them from your garden hose to make sure the downspouts are clear and the water is channeled away from the foundation.
- Check gutter sections for alignment and adjust them if necessary. Make sure seams between the sections are watertight.
- Downspout extensions, available at hardware stores, can be used to carry water away from the home. Use these only where they won’t pose a tripping hazard.
- Use binoculars to check the roof for missing or damaged shingles and flashing. If you notice any issues, have the roof inspected and any repairs made by a qualified professional before the snow!
Help keep your loved ones and your home safe during the holidays with these smart precautions.
- Check holiday light strands for damaged or broken wires and plugs. Enjoy indoor lights only while someone is home and turn them off before going to bed.
- Keep live Christmas trees in a sturdy, water-filled stand and check daily for dehydration. Dried-out trees are dangerous and should be discarded immediately.
- Always use non-flammable decorations both indoors and outdoors.
- Be sure to keep space heaters away from bedding, curtains, paper — anything flammable. Never leave space heaters unattended while in use.
- Children should not have access to or be allowed to use matches, lighters or candles.
- Candles add lovely ambience to your holiday home. They need to be placed in stable holders and kept away from flammable items, drafts, pets and children or use an LED candle for peace of mind.
- Busy with holiday cooking and baking? Kitchen fires are the leading cause of house fires. Keep an all-purpose fire extinguisher within easy reach and know how to use it.
We hope you enjoy a happy and safe holiday season!
SURREY, BC – The demand for Fraser Valley real estate is the strongest it's been since the spring of 2018.
The Fraser Valley Real Estate Board processed 1,592 sales of all property types on its Multiple Listing Service® (MLS®) in October, a 18.5 per cent increase compared to sales in September 2019, and a 37.8 per cent increase compared to the 1,155 sales in October of last year.
Darin Germyn, President of the Board, says, "Our market started to pick up in the summer and we've been steadily improving since. It's rare to see October home sales in the Fraser Valley outpace April and that's what we've seen this year; our typical spring and fall markets have flipped.
"Consumers are feeling more confident. Buyers have grown accustomed to the government's regulation changes. Interest rates have thankfully remained stable and we're likely seeing some pent-up demand from buyers who were holding off earlier this year. October's beautiful, sunny weather didn't hurt either."
Germyn adds, "We're still seeing some hesitation from sellers to list as they continue to watch for further price erosion, however, it's important to talk to your local market expert because prices in some areas have turned the corner and are starting to creep up again."
SURREY, BC - For the third straight month, home sales in the Fraser Valley surpassed 2018 levels bringing the market back in line with long-term averages.
The Fraser Valley Real Estate Board processed 1,343 sales of all property types on its Multiple Listing Service® (MLS®) in September, a 3.5 per cent increase compared to sales in August 2019, and a 29.8 per cent increase compared to the 1,035 sales in September of last year.
Darin Germyn, President of the Board, says, "The market's return to balance is good news for both buyers and sellers, however it's important to put the 30 per cent year-over-year increase in sales into context. September's sales went from amongst the worst in 10 years to just above our 10-year average."
"Home prices are still dropping compared to a year ago, but on a month-to-month basis, prices are moderating because supply is shrinking. Our incoming supply of new listings has dropped consistently for the last four months pushing our total inventory in the Fraser Valley to the lowest it's been since April, which has had an impact on prices."
There were 7,946 active listings available in the Fraser Valley at the end of September, an increase of 3.9 per cent compared to September of last year and a decrease of 1.2 per cent compared to August 2019. The Board received 2,769 new listings in September, a 17.5 per cent increase compared to August 2019's intake of 2,357 new listings and a 6 per cent decrease compared to September of last year.
Germyn adds, "Financing is still a challenge for many clients, but fortunately in a balanced market like this, REALTORS® have the time to work with clients and advise them of the best strategies for them, whether they are buying or selling."
MLS® HPI Benchmark Price Activity
- Single Family Detached: At $950,000, the Benchmark price for a single-family detached home in the Fraser Valley decreased 0.4 per cent compared to August 2019 and decreased 3.9 per cent compared to September 2018.
- Townhomes: At $520,000 the Benchmark price for a townhome in the Fraser Valley in the Fraser Valley decreased 0.3 per cent compared to August 2019 and decreased 4.8 per cent compared to September 2018.
- Apartments: At $405,500, the Benchmark price for apartments/condos in the Fraser Valley decreased 0.9 per cent compared to August 2019 and decreased 7.6 per cent compared to September 2018.
For the Fraser Valley region, the average number of days to sell an apartment in September was 41, and 37 for townhomes. Single family detached homes remained on the market for an average of 46 days before selling.
Only wrap your palms before the cold weather begins (in Vancouver this is usually the middle of November) and remove it just before the weather warms up (in Vancouver this would be February). If one leaves the wrapping on too long you risk rotting the plants in the warmer weather of spring.
Step by step instructions from Cedar Rim Nursery here..
This Saturday from 11am to 6pm at Ralph's Market in Murrayville..it's a family friendly event with craft fair, food/wine and entertainment! More details here: Langley Food Truck Festival
#food #street #foodie #market #festival
Hi folks! Click on the image below to see a "live" interactive graph of real estate prices for the last 36 months right up to July 2019. Move your cursor over the timeline and see the values pop right up for you!
This graph displays detached "resale" home prices in Langley 1100-1999 sq ft.
*Sales activity picked up last month, momentum is building and this is not a bad time to sell. Especially if you just need to downsize or upsize!
Hi again folks, here's another very cool live and interactive graph for TOWNHOMES in Langley BC. Click on the image and run your cursor over the timeline to see median sale prices from the last 3 years month by month..
One more time for CONDO's! You know what to do - click on the image and run your cursor over the live interactive graph to see values each month along the timeline. Let us know what other information you would like to see at DANMACHOMES!
It’s not unusual to find you owe some money to the Canada Revenue Agency (CRA) after filing your personal tax returns. Especially if you have neglected doing them for a few years. And like any other unexpected expense, you need to tighten your belt buckle, work even harder and try to find ways to eliminate the debt before you run up lots of interest charges and late payment penalties.
You may find other immediate obligations are more pressing, so if you’re not able to settle the tax debt right away, it is best to stay in touch with CRA and let them know your plan to reduce and eliminate the debt. They do have some flexibility. (This is a good way to manage all debt, not just tax debt.)
Occasionally we encounter homeowners whose tax debt is so large it cannot be readily paid through the normal course of life. The end result is a debt that can’t be negotiated away, with a creditor you can’t afford to ignore.
In recent months, we have dealt with several homeowners who found themselves in this predicament. In these instances, the smallest CRA debt was $40,700 and the largest more than $200,000. In each case, the debtor also owed money elsewhere – and had significant credit card balances and other unsecured debt. The size of the problem was way beyond the norm.
This seems to happen more often to small business owners and self-employed individuals. Regular folks are not immune though; we recently met a family with an unexpected $32,000 tax debt incurred as a result of selling an investment property and triggering a taxable capital gain.
You might think all these folks could just tap into their personal line of credit or take out a loan to pay this off, but these solutions were not available to them.
Fortunately, if you own a home and have decent equity, sometimes a creative mortgage financing solution can help clean things up, even if the amounts due are substantial, bank accounts have been garnished or even liens have been placed on your property.
Ways home equity can be used to pay very large CRA arrears
Keep in mind, when there is a large CRA debt, very few traditional lenders want to complete a mortgage refinance before the debt is remedied. In such a predicament, there are several ways home equity can be used to pay off CRA debt:
- If you already have a Home Equity Line of Credit (HELOC), and there is sufficient room to pay the tax debt, this can make tons of sense. You basically just write a cheque and be done with it. The interest rate is probably around prime + 0.5%, and that might be as good as it gets in these situations. This will solve the immediate problem; then you need a plan to reduce your HELOC balance by saving aggressively and paying it down. Or, ultimately you may decide it makes sense to refinance and roll the HELOC balance into your mortgage.
- Borrow money from a family member or close friend, pay the debt, then consider refinancing your mortgage and repay your benefactor.
- Borrow money from a private second mortgage lender, pay the debt, then refinance down the road. The length of time you wait to refinance depends on the strength of the file, which lender currently holds your first mortgage and when that mortgage is set to mature. A few “B lenders” have second-position financing options, which may suit this approach.
- Refinance the first mortgage to a “B lender” (alternative lender). The new mortgage amount is ideally large enough to clear CRA completely, and cover all fees and other debts.
- When there’s insufficient equity to pay CRA in full, it may be time for a negotiated settlement. My own experiences along these lines involve trustees who will file a consumer proposal on behalf of the debtor. Others report they’ve had success with skilled tax accountants.
The right solution will depend on the circumstances of each situation. It’s also important to note there are circumstances where homeowners will not be good candidates for eventual traditional lending no matter how we solve the immediate problem. This often happens when:
- Their income doesn’t meet the stress test qualification rules and they may need to work with alternative lenders allowing higher debt service ratios
- They’re self-employed with income that’s difficult to verify by traditional methods
- Their personal credit history has shut the door to traditional lenders (e.g., multiple insolvencies or recent late mortgage payments)
So, let’s examine the scenarios where each of these approaches is most appropriate.
Scenario 1. Homeowner’s finances and credit are in good shape. The only issue is a large CRA debt where no traditional lender wants to complete a mortgage refinance before the debt is remedied.
This lack of interest by traditional lenders is common when there’s a large CRA debt. CRA is a very powerful creditor which, in some instances, can take preference over all other creditors. This means we need to fix the CRA problem first, and then find the right loan to get the costs as low as possible.
The cheapest solution is to consider asking a family member or close friend if they’ll lend you the money for a short period of time (option 2 above). Funds may only be required for a month or two. If you go this route, your real estate lawyer should be involved to protect your benefactor’s interests. As soon as you can prove to an institutional lender that there’s no tax debt owing, it’s then possible to refinance the traditional way, and pay back your emergency loan hero.
Scenario 2. If you don’t have someone who can bail you out via a loan, then you would move to the second option, which is working with an experienced mortgage broker who can find a suitable lender willing to grant you a second mortgage. Ideally, that mortgage will be open without prepayment penalty. That’s hard to find with a private mortgage, so if the terms would not allow the loan to be open immediately, then having it open after a few months is also a good option. As with the first option, once you have proof of payment for CRA arrears, you should be in fine shape to refinance your primary mortgage with your current lender. That may save prepayment penalties too, depending on your lender.
Scenario 3.Not only is there CRA debt, but the credit history is weak, resulting in a low score. It will take time to bring the file back to traditional lender status. In this case, your best option is to refinance the mortgage with an alternative lender, or first secure a second mortgage for a year or two. Our goal in this scenario is to determine what kind of lender will take on your deal once the situation is fixed; and we will recommend the lowest cost and least painful overall approach.
Scenario 4. CRA tax arrears and other unsecured debt exceeds the amount of equity that can be extracted. Keep in mind, though, if the CRA has already placed a lien on your home, you are unlikely to be able to negotiate a discounted settlement with them.
In this scenario, the homeowners might work with a trustee to negotiate the terms of a consumer proposal. At that point, all unsecured debts, including the CRA debt, are packaged together, and most proposals agree to repay a certain amount of money (usually $x per month) to all creditors over the next five years. With no further interest costs and late payment penalties.
Once the proposal has been accepted by the creditors, it might be possible that a mortgage broker experienced in this sort of lending can arrange a second mortgage to complete a lump-sum payout of the consumer proposal, or even refinance directly to an alternative lender to pay the reduced debt amount
As you can see, when you own your own home there are many options to address the issue of large CRA tax arrears impacting your borrowing power. Obviously, some real estate markets lend themselves to this approach better than others – the more equity you have in your home, the more likely one of these solutions might work.
The key is to deal with the issue ASAP. This situation will not work itself out and CRA will not give up. Oftentimes indecision and paralysis make the situation worse than it ever needed to be.
During the process, it is best to stay in contact with your CRA case officer, and explain you are looking at different ways to raise capital to settle your debt. The process can be painful, but having the right experts on your side will make all the difference.
Thanks to tighter mortgage qualification rules and higher-priced real estate—particularly in the greater Vancouver and Toronto areas—it’s not always easy to qualify for a mortgage on your own merits.
You may very well have a great job, a decent income, a husky down payment and perfect credit, but that still may not be enough.
When a lender crunches the numbers, their calculations may indicate too much of your income is needed to service core homeownership expenses such as your mortgage payment, property taxes, heating and condo maintenance fees (if applicable).
In mortgage-speak, this means your debt service ratios are too high and you will need some extra help to qualify. But you do have options.
A co-signer can make all the difference
A mortgage co-signer can come in handy for many reasons, including when applicants have a soft or blemished credit history. But these days, it seems insufficient income supporting the mortgage application is the primary culprit.
We naturally tend to think of co-signers as parents. But there are also instances where children co-sign for their retired/unemployed parents. Siblings and spouses often help out too. It’s also possible for more than one person to co-sign a mortgage. A co-signer is likely to be approved when the lender is satisfied he/she will help lessen the risk associated with loan repayment.
Under the microscope
When you bring a co-signer into the picture, you are also taking their entire personal finances into consideration. It’s not just a simple matter of checking their credit.
Your mortgage lender is going to need a full application from them in order to grasp their financial picture, including information on all properties they own, any debts they are servicing and all of their own housing obligations. Your co-signer will go through the wringer much like you have.
What makes a strong co-signer?
The lender’s focus is mainly centred around a co-signer’s income coupled with a decent credit history. Some people think that if they have tons of equity in their home (high net worth) they will be great co-signers. But if they are primarily relying on CPP and OAS while living mortgage free, this is not going to help you qualify for a mortgage.
The best co-signer will offer strengths you currently lack when filling out a mortgage application on your own. For instance, if your income is preventing you from qualifying, find a co-signer with strong income. Or, if your issue is insufficient credit, bring a co-signer on board who has healthy credit.
There are typically two different ways a co-signer can take shape:
- The co-signer becomes a co-borrower. This is like having a partner or spouse buy the home alongside a primary applicant. This involves adding the support of another person’s credit history and income to the application. The co-signer is placed on the title of the home and the lender considers this person equally responsible for the debt if the mortgage goes into default.
- The co-signer becomes a guarantor. In this scenario, he/she is backing the loan and vouching you’ll pay it back on time. The guarantor is responsible for the loan if it goes into default. Not many lenders process applications with guarantors, as they prefer all parties to share in the ownership. But some people want to avoid co-ownership for tax or estate planning purposes (more on this later).
Nine things to keep in mind as a co-signee
- It is a rare privilege to find someone who is willing to co-sign for you. Make sure you are deserving of their trust and support.
- It is NOT your responsibility to co-sign for anyone. Carefully think about the character and stability of the people asking for your help, and if there is any chance you may need your own financial flexibility down the road, think twice before possibly shooting yourself in the foot.
- Ask for copies of all paperwork and be sure you fully understand the terms before signing.
- If you co-sign or act as a guarantor, you are entrusting your personal credit history to the primary borrowers. Late payments hurt both of you, so I recommend you have full access to all mortgage and tax account information to spot signs of trouble the instant they occur.
- Understand your legal, tax and even your estate’s position when considering becoming a co-signer. You are taking on a potentially large obligation that could cripple you financially if the borrower(s) cannot payA prudent co-signer may insist the primary applicants have disability insurance protecting the mortgage payments in the event of an income disruption due to poor health. Some will also insist on life insurance.
- A prudent co-signer may insist the primary applicants have disability insurance protecting the mortgage payments in the event of an income disruption due to poor health. Some will also insist on life insurance.
- Try to understand upfront how many years the co-borrower agreement will be in place, and whether you can change things mid-term if the borrower becomes able to assume the original mortgage on their own.
- There can be implications with respect to your personal income taxes. You may accumulate an obligation to pay capital gains taxes down the road. This should be discussed this with your tax accountant.
- Co-signing impacts Land Transfer Tax Rebates for first-time homebuyers. The rebate amount is reduced based on the percentage of ownership attributed to the co-signer.
Tips from a real estate lawyer
We spoke with Gord Mohan, an Ontario real estate lawyer, for unique insights based on his 22 years of experience.
There's always lots to consider, particularly if you're a first-time home buyer. In addition to helping you find your dream home, your REALTOR® can also help you navigate the new stress test rules and requirements.
Start by downloading a copy of the Homebuyers' Road Map—a guide covering virtually every aspect related to buying a home. Then, to get an idea of what you might be able to afford, our mortgage calculators includes interest rate risk in its parameters, assuring your estimates will pass the mortgage stress test.
Armed with a little know-how and backed by the support and expertise of your REALTOR®, you'll be on your way to holding the keys to your new home in no time!