Rental Property Mortgage

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Rental Property Mortgage

Purchasing or refinancing a rental property can be a lot more complicated when it comes to getting a rental property mortgage. Another industry description of it is investment property mortgage; where investment property could be a residential rental property, or none residential property.

In Canada the Chartered Banks and many National institutional lenders offer the same discounted rates and features as regular owner occupied mortgages for rental property mortgages up to 4 units. But once you go passed the 4 unit cap then the mortgage becomes categorized as a commercial transaction and it is underwritten and viewed as such, including more strenuous ‘stress’ tests and mortgage conditions and policies.

Rental property mortgage or investment property mortgages

Are still available through the Chartered Banks but they can be very difficult to be approved by them, whereas other institutional lenders and private lenders can be more flexible and forgiving on certain personal and corporate borrower realities that the banks won’t be flexible on.

Many times than not, when a borrower cannot get their rental property mortgage application approved by the Chartered Banks they approach mortgage brokers, or mortgage agents for help. Mortgage Brokers or Mortgage Agents have specialized training and knowledge of the mortgage industry and can help with finding the suitable lender who would be the right fit for their client’s rental property mortgage.

A rental property mortgage would generally be called and categorized by some as a commercial mortgage. With these types of mortgages the time needed to get the mortgage approved and closed is much longer than traditional residential owner occupied mortgages. On average it can take one month or longer to complete a rental property mortgage transaction.

There are different sub categories or types of rental property mortgages and we will go through each of them in terms of the borrowing features they have:

Multi-Unit up to 2 units

One of the units must be occupied by the owner

duplex rental property mortgage

Can borrow up to 95% of the appraised value

Most of the time the mortgage is portable to another property

If providing less than 20% down payment the rental property mortgage must be insured through Canada Mortgage Housing Corporation CMHC

Although CMHC allows flexibility of where the down payment comes from, most lenders do not, and require that the borrower of the mortgage has the down payment in his or her bank accounts for at least three months (two months if not insured)

Maximum amortization is 25 years

All employment and credit history / strength requirements apply

Have mortgage questions about rental property mortgages or investment properties in general? Reach out to us. We can help.

Multi-Unit 3-4 units

One of the units must be occupied by the owner

Can borrow up to 90% of the appraised value

Most of the time the mortgage is portable to another property

If providing less than 20% down payment the rental property mortgage must be insured through Canada Mortgage Housing Corporation CMHC

Although CMHC allows flexibility of where the down payment comes from, most lenders do not, and require that the borrower of the mortgage has the down payment in his or her bank accounts for at least three months (two months if not insured)

Maximum amortization is 25 years

All employment and credit history / strength requirements apply

If you are considering purchasing this type of property or refinancing an existing one please contact us.

Multi-Unit 5 units and up

With any properties of 5 units or higher Chartered Banks refer the application to their commercial departments and Mortgage Brokers or Mortgage Agents would submit their applications to specialized commercial lenders, and some who have relationships with local commercial bank branches in the locality of the subject property may also submit the application to them.

rental property mortgage

Chartered Banks work with CMHC when the clients have between 15% and up to but not including 20% down payment. Some of the National lenders also work with CMHC and may accept applications with less than 20% up to 15%.

With CMHC insured rental property mortgages a minimum of 15% down payment is required when purchasing or refinancing.

Most commercial lenders for rental property mortgages work with CMHC even if the client provides 20% down payment. This is to protect themselves in the event of a default.

CMHC also charges a premium fee for each unit in the property. Detailed calculation of the premiums are done by CMHC and provided to the lender, which is then forwarded to the Mortgage Broker or Agent to share with the client. The fee schedule could also be found on CMHC’s web site

To mitigate risk and to avoid CMHC insurance lenders will consider a lower mortgage amount and higher down payment by the borrower, normally anywhere between 60% to 70% of the appraised value.

We are here to help and accompany you through the complicated mortgage application process of multi-unit 5+ properties. Contact us and let’s work together.

 

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Mortgage Down Payment

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Mortgage Down Payment

If you have been or are currently a first time home buyer, one of the many questions that you will probably have is about the mortgage down payment. What is the mortgage down payment all about and how much is enough to have.

In Canada for the majority of the consumer who are looking to purchase an owner-occupied home – this means a home that you will be living in – the minimum mortgage down payment amount is 5% of the purchase price.

If you are buying a second home for your kids to live in while in school, or you would like to get that cottage property or vacation property that you have always dreamed of having, you can still put down as low as 5% as your mortgage down payment.

With any mortgage product, there is always the lending institutions own underwriting guidelines that you have to meet and be approved by, but 5% is the available minimum amount to go with.

Acceptable sources of your mortgage down payment

For the most part, if you are only providing 5% down payment for your mortgage, then there is a very high probability that you will be getting your mortgage from one of the big Canadian Banks or mortgage broker channel lenders that work with the mortgage loan insurance providers; CMHC – Canada Mortgage and Housing Corporation, Genworth, and Canada Guaranty.

Because these lenders get their mortgage insured and protected against any mortgage defaults by the client – you the consumer – they have to meet their requirements as to the source of where your down payment is coming from. We may add that even if you were to provide more than 20% down payment and no mortgage loan insurance is required, many of the banks still go by the similar guidelines of the insurers that we are about to explain.

Your mortgage down payment must come from your own resources. The funds you use for the down payment must be sitting in your own bank account, investment account, RRSP account, or any other account that is registered to you the applicant’s name for a minimum of three months.

The only time that you can get down payment from someone else is when you receive gift money from immediate family members, in which case the banks would accept it as it is not a loan.

Therefore, you cannot borrow money to put towards your down payment. If you do borrow the money from another lending institution, the bank will turn it down and ask that you prove that you have enough money in your own accounts. If you do not have the down payment or have to borrow it from someone or some institution, then you could get a lot of headaches and trouble from the bank and there is a good chance that they will decline your mortgage application.

In conclusion; if you are planning to buy your own home sometime in the near future, you should start saving up now.

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Home buying step by step – Step 4

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Source: CMHC Canada Mortgage and Housing Corporation

home buying step by step

 

Home Buying Step by Step – Step 4 The Buying Process

Starting Your Search

 

Here are some ways to begin looking for your new home:

  • Word-of-mouthTell everyone you know that you are looking for a new home. Surprising things sometimes happen. For example, you might hear about a home that is just becoming available on the market.
  • Newspapers and real estate magazinesCheck the new homes section in daily newspapers. Look for the free real estate magazines available at newsstands, convenience stores and other outlets. These publications are free and give pictures and short descriptions of homes for sale.
  • The InternetCheck out real estate websites, such as realtor.ca. These websites give information and pictures of a wide range of properties. Most sites let you search by location, price, number of bedrooms, and other features.
  • “For Sale” signsDrive, bike or walk around a neighbourhood that interests you and look for “For Sale” signs. This is a good way to find homes that are being sold by the owner and are not listed with an agent.
  • Visit new development sitesIf you are looking for a newly built home, you can see available models and get information from builders.
  • Work with a realtorFor most buyers, a realtor is key to finding the right home.

 

Useful Tips for Your Search

  • Keep recordsWhether you have a realtor or are looking by yourself, visit lots of homes before choosing one. Some things to compare are the home’s energy rating, utility costs, property taxes and major repairs. These will affect your monthly housing expenses. You can ask to see copies of utility and other bills. Use the CMHC Home Hunting Comparison Worksheet to make sure you get all the information you need to compare homes.
  • Check out the property’s current financingIf the existing mortgage on the home is favourable, it may be possible to take it over from the vendor. It may even be possible to get a vendor take back mortgage, to help close the deal.
  • Think twiceEven if a home seems perfect, go back and take a closer, more critical look at it. Visit it on different days and different times of the day. Chat with the neighbours. Look deeper — don’t be distracted by attractive surface details.
  • Energy RatingSome houses and most new homes in Canada have an Energy Rating that describes the energy efficiency of the home. An energy-rated home usually has a sticker with the rating on the electrical panel. The energy rating is on a 0 – 100 scale. The higher the rating, the more energy-efficient is the home, and the less it costs to operate.
  • CMHC statistics and analysisCMHC has the latest statistical information and analysis of housing trends. Our Market Analysis Centre tracks information for local, provincial and national markets.

 

Making an Offer to Purchase

 

After you have found the home you want to buy, you need to give the vendor an Offer to Purchase (sometimes called an Agreement of Purchase and Sale). It is very helpful to work with a realtor (and/or a lawyer/notary) to prepare your offer. The Offer to Purchase is a legal document and should be carefully prepared.

These items are typically included:

  • NamesYour legal name, the name of the vendor and the legal civic address of the property.
  • PriceThe price you are offering to pay.
  • Things includedAny items in or around the home that you think are included in the sale should be specifically stated in your offer. Some examples might be window coverings and appliances.
  • Amount of your deposit
  • The closing dayThe closing day is the date you take possession of the home. It is usually 30 – 60 days after the date of agreement. But, it can be 90 days, or even longer.
  • Request for a current land survey of the property.
  • Date the offer expiresAfter this date the offer becomes null and void — that means it’s no longer valid.
  • Other conditionsOther conditions may include a satisfactory home inspection report, a property appraisal, and lender approval of mortgage financing. This means that the contract will become final only when the conditions are met.

 

What Happens After You Make an Offer to Purchase?

 

Imagine that your realtor has helped you prepare an Offer to Purchase. This offer includes all the details of the sale. To be extra cautious (since you know an Offer to Purchase is legally binding) ask your lawyer to look at it before showing it to the vendor. The realtor presents the offer to the vendor. What can you expect to happen next? There are three possible responses.

  • Response 1The vendor accepts your offer. The deal is concluded and you move on to the next steps in the buying process.
  • Response 2The vendor makes a counter-offer. The counter-offer might ask for a higher price, or different terms. You can sign the offer back to the vendor, offering a higher price than your original offer, but lower than the vendor’s counter-offer. If the vender accepts this counter-offer, the deal is concluded.
  • Response 3The vendor makes a counter-offer, asking for a higher price or different terms. If a counter-offer is returned to you at a higher price, ensure that you know exactly how much you can afford before you start negotiating. You don’t want to get caught up in the heat of the moment with costs you can’t afford. You reject the counter-offer because the price is still too high, or you can’t agree to the conditions. The sale doesn’t go through, and your deposit is returned.

 

Getting a Mortgage

 

Once your Offer to Purchase has been accepted, go to see your lender. Your lender will verify (and update, if necessary) your financial information and put together what’s needed to complete the mortgage application. Your lender may ask you to get a property appraisal, a land survey, or both. You may also be asked to get title insurance. Your lender will tell you about the various types of mortgages, terms, interest rates, amortization periods and, payment schedules available.

 

Depending on your down payment, you may have a conventional mortgage or a high-ratio mortgage.

 

Types of Mortgages

 

Conventional Mortgage

A conventional mortgage is a mortgage loan that is equal to, or less than, 80% of the lending value of the property. The lending value is the property’s purchase price or market value — whichever is less. For a conventional mortgage, the down payment is at least 20% of the purchase price or market value.

 

High-ratio Mortgage

If your down payment is less than 20% of the home price, you will typically need a high-ratio mortgage. A high-ratio mortgage usually requires mortgage loan insurance. CMHC is a major provider of mortgage loan insurance. Your lender may add the mortgage loan insurance premium to your mortgage or ask you to pay it in full upon closing.

 

Mortgage Term

Your lender will tell you about the term options for the mortgage. The term is the length of time that the mortgage contract conditions, including interest rate, will be fixed. The term can be from six months up to ten years. A longer term (for example, five years) lets you plan ahead. It also protects you from interest rate increases. Think carefully about the term that you want, and don’t be afraid to ask your lender to figure out the differences between a one, two, five-year (or longer) term mortgage.

 

Mortgage Interest Rates

Mortgage interest rates are fixed, variable or adjustable.

 

Fixed Mortgage Interest Rate

A fixed mortgage interest rate is a locked-in rate that will not increase for the term of the mortgage.

 

Variable Mortgage Interest Rate

A variable rate fluctuates based on market conditions. The mortgage payment remains unchanged.

 

Adjustable Mortgage Interest Rate

With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.

 

 

Open or Closed Mortgage

 

Closed Mortgage

A closed mortgage cannot be paid off, in whole or in part, before the end of its term. With a closed mortgage you must make only your monthly payments — you cannot pay more than the agreed payment. A closed mortgage is a good choice if you’d like to have a fixed monthly payment. With it you can carefully plan your monthly expenses. But, a closed mortgage is not flexible. There are often penalties, or restrictive conditions, if you want to pay an additional amount. A closed mortgage may be a poor choice if you decide to move before the end of the term, or if you want to benefit from a decrease of interest rates.

 

Open Mortgage

An open mortgage is flexible. That means that you can usually pay off part of it, or the entire amount at any time without penalty. An open mortgage can be a good choice if you plan to sell your home in the near future. It can also be a good choice if you want to pay off a large sum of your mortgage loan. Most lenders let you convert an open mortgage to a closed mortgage at any time, although you may have to pay a small fee.

 

Amortization

Amortization is the length of time the entire mortgage debt will be repaid. Many mortgages are amortized over 25 years, but longer periods are available. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run. If each mortgage term is five years, and the mortgage is amortized over 20 years, you will have to renegotiate the mortgage four times (every five years).

 

Payment Schedule

A mortgage loan is repaid in regular payments — monthly, biweekly or weekly. More frequent payment schedules (for example weekly) can save some interest costs by reducing the outstanding principal balance more quickly. The more payments you make in a year, the lower the overall interest you have to pay on your mortgage.

 

New Home Warranty Programs

 

Each province has new home warranty programs.

 

British Columbia

See the Homeowner Protection Office at www.hpo.bc.ca for the most up-to-date list of warranty programs. These include:

 

Lombard Canada New Home Warranty Program: www.lombard.ca

 

Travelers Guarantee Company of Canada (formerly London Guarantee Insurance Company): www.travelersgaurantee.com

 

National Warranty Program Ltd.: (includes Royal and Sun Alliance) www.nationalhomewarranty.com

 

Pacific Home Warranty Insurance Services Inc. (Echelon General Insurance Company): www.pacificwarranty.com

 

Willis Canada Ltd (Commonwealth Insurance): www.williswarranty.com

 

Alberta

Progressive New Home Warranty Program (Echelon General Insurance Company): www.progressivewarranty.com

 

National Home Warranty Program Ltd.: www.nationalhomewarranty.com

 

New Home Warranty Program of Alberta:www.anhwp.com

 

Blanket Home Warranty Ltd.: www.blankethomewarranty.ca

 

Saskatchewan

Progressive New Home Warranty Program (Echelon General Insurance Company): www.progressivewarranty.com

 

National Home Warranty Program Ltd.: www.nationalhomewarranty.com

 

New Home Warranty Program of Saskatchewan: www.nhwp.org

 

Blanket Home Warranty Ltd.: www.blankethomewarranty.ca

 

Manitoba

Progressive New Home Warranty Program (Echelon General Insurance Company): www.progressivewarranty.com

 

National Home Warranty Program Ltd.: www.nationalhomewarranty.com

 

New Home Warranty Program of Manitoba: www.mbnhwp.com

 

Blanket Home Warranty Ltd.: www.blankethomewarranty.ca

 

Ontario

Tarion Warranty Corporation: www.tarion.com

 

Quebec

Garantie des maisons neuves de l ’APCHQ:www.gomaison.com

 

Garantie des maisons neuves de l’ACQ: www.acg.org

 

La garantie des maîtres bâtisseur: www.maitresbatisseurs.com

 

New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador

Atlantic Home Warranty Program: www.ahwp.org

 

Lux Residential Warranty Program: www.luxrwp.com

 

Progressive New Home Warranty Program (Echelon General Insurance Co.): www.progressivewarranty.com

 

Closing Day

Closing day is the day when you finally take legal possession and get to call the house your home. The final signing usually happens at the lawyer or notary’s office.

 

These are the things that happen on closing day:

  • Your lender will give the mortgage money to your lawyer/notary.
  • You must give the down payment (minus the deposit) to your lawyer/notary. You must also give the remaining closing costs.
  • Your lawyer/notary
    • Pays the vendor
    • Registers the home in your name
    • Gives you the deed and the keys to your new home

 

Moving

 

Hiring a Mover

When planning your move, friends or relatives may be able to recommend a professional moving company. Don’t forget to ask the mover for references. Ask the mover for an estimate and outline of fees (Do they charge a flat rate or hourly fee?). Once you’ve chosen a mover, ask them to come to your home to see what will be moved in case the estimate needs to be changed.

 

You’ll want to ensure that your belongings are insured during the move. Your home or property insurance may cover goods in transit. Call your broker or insurance company to be sure. Ask if you are fully covered. Many moving companies offer additional insurance coverage. Be aware that professional movers are not responsible for items such as jewellery, money, or important papers. Move these yourself to keep them safe.

 

If you decide to do your own packing, keep in mind that you will need the proper materials, and that packing can take up a lot of time.

 

Moving Day

On moving day, go through the house with the van supervisor and give him (or her) any special instructions. The supervisor will note the condition of your goods on an inventory list. Go through the house with the supervisor to make sure the list is complete and accurate. When the van arrives at your new home, mark off the items on the mover’s list as they are unloaded. If you paid for the movers to unpack boxes and remove packing materials, remember that they will not put dishes or linens into cupboards.

 

Moving day is almost always tiring. But, planning ahead will make the transition as smooth as possible.

 

Moving Costs

The amount you spend depends on your decisions about many things. Here are some to think about:

  • Do you want to hire professional movers?
  • If so, will it be a large company, or a smaller local moving company?
  • Will you need to buy insurance to protect your items in transit?
  • If you plan to move yourself, will you rent a vehicle?
  • Will your current auto or home insurance policy cover your items during the move?
  • Will you have to pay utility companies a fee to connect their services in your new home? Are there other utility charges (such as a deposit)?

 

Post-Closing Costs

 

Changing the Locks

When you move into your new home you’ll want to change the exterior door locks for security. After all, you want only the people you choose to have the key to your new home. You can change the locks yourself, or call a locksmith to do the job.

 

Cleaning

Both your old home and your new home should be given a thorough cleaning at moving time. Whether you’re buying cleaning supplies and doing it yourself, or hiring someone to clean for you, the costs can really add up. Plan for this expense.

 

Decorating

You might want to re-paint, replace some light fixtures, refinish the floor, re-carpet, or do any number of other re-decorating tasks. Plan your budget, and consider postponing some projects for a period of time.

 

Appliances

If your offer to purchase didn’t include appliances, and if you don’t have your own, you will have to buy them when you move into your new home. Some appliances might have installation charges.

 

Tools and Equipment

When you own your own home, you can no longer call the landlord to do repairs. You’ll need to own some basic hand tools and possibly some gardening and snow clearing equipment.

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Home buying step by step – Step 1

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Source: CMHC Canada Mortgage and Housing Corporation

Home buying step by step 

Step 1: Is Home Ownership Right for you? – Home buying step by step

home owner ship right for you

 

So, you’ve finally decided to fulfill a lifelong dream and buy your own home… how exciting! You are ready to fulfill your dream of having a place to call your own.

Buying a home is one of the biggest emotional and financial decisions you’ll ever make. Prepare by learning about the process of home buying and the responsibilities of home ownership. The differences between renting and buying a home are vast, and there’s a long list of pros and cons for both options. And, remember — there is no one best decision for everyone. Before moving forward, though, here are some questions to consider.

  • Do you have the necessary financial management skills?
  • How financially stable are you?
  • Are you ready to take on the responsibility of all the costs involved in home ownership, including mortgage payments, repairs, and maintenance?
  • Are you able to devote the time required for home maintenance?

There are pros and cons for both renting and buying. Everyone must make his or her own best decision. Buying a home is not for everyone. Take a moment to think through the advantages and disadvantages of both owning and renting.

Are the advantages of owning your home really bigger than the advantages of renting? Are the disadvantages of owning your own home really smaller than the disadvantages of renting?

If home ownership is for you, you must be both financially and emotionally ready. Buying a home isn’t only about money. You should listen to your heart… and take an honest look at your lifestyle.

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Fighting Mold The Homeowners Guide

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source: CMHC

Fighting Mold The Homeowners Guide

Understanding mold

  • Mold can be harmful or helpful — depending on where it grows.
  • Mold needs moisture to grow.
  • Mold does not grow on dry materials.
  • Mold growing inside a home can affect the occupants.
  • Occupants can learn to recognize mold.

Molds are microscopic fungi, a group of organisms which also includes mushrooms and yeasts. Fungi are highly adapted to grow and reproduce rapidly, producing spores and mycelia in the process.

You encounter mold every day. Foods spoil because of mold. Leaves decay and pieces of wood lying on the ground rot due to mold. That fuzzy black growth on wet window sills is mold. Paper or fabrics stored in a damp place get a musty smell that is due to the action of molds.

Molds can be useful to people. The drug penicillin is obtained from a specific type of mold. Some foods and beverages are made by the actions of molds. The good kinds of molds are selected and grown in a controlled fashion.

Molds are undesirable when they grow where we don’t want them, such as in homes. Over 270 species of mold have been identified as living in Canadian homes. Molds that grow inside may be different from the ones found outdoors.

 

What makes molds grow?

Molds will grow if we provide them with moisture and nutrients. If we keep things dry, molds do not grow.

High moisture levels can be the result of water coming in from the outside, through the floor, walls or roof; or from plumbing leaks; or moisture produced by the people living in the home, through daily activities like bathing, washing clothes or cooking. Water enters the building when there is a weakness or failure in the structure. Moisture accumulates within the home when there is not enough ventilation to expel that moisture.

Different kinds of molds grow on different materials. Certain kinds of molds like an extremely wet environment. Other kinds of molds may be growing even if no water can be seen. Dampness inside the material can be enough to allow them to grow.

 

Why are molds a concern?

Damage to materials is one concern. Materials get stained or discoloured, and over time they are ruined. Moldy paper and cardboard disintegrate over time. Fabrics are damaged. Continued mold growth can be indicative of moisture conditions favourable for growth of fungi that cause wood rot and structural damage.

When molds are growing inside the home, there may be health concerns. Molds release chemicals and spores.

Health experts indicate that, depending on the type of mold present in a home, the amount and degree of exposure, and the health condition of the occupant, the health effects of mold can range from being insignificant to causing allergic reactions and illness.

Pregnant women, infants, the elderly and those with health problems, such as respiratory disease or a weakened immune system, are more at risk when exposed to mold. Consult your family physician if you believe there is someone who may be at risk.

 

Is there a mold problem?

Molds are always found in the air outside and in all buildings. They come into the home in many ways — through open windows or doors, on clothing, pets, food or furniture. The problem starts when mold grows inside the home.

Some mold growing, for example on the window sill but not elsewhere, is not a cause of concern. You can clean the mold yourself. The presence of mold is a sign that there is too much moisture in your home — a situation which must be corrected.

Inspect the home to find the extent of the mold.

 

How can you tell if it is mold?

 

Discoloration

Discoloration is a sign of mold. However, all discoloration is not due to mold. Carpeting near baseboards, for example, can be stained by outdoor pollution entering the home. Stains or soot may also be caused by the smoke from burning candles or cigarettes.

Mold may be any colour: black, white, red, orange, yellow, blue or violet. Dab a drop of household bleach onto a suspected spot. If the stain loses its colour or disappears, it may be mold. If there is no change, it probably isn’t mold.

 

Smell/Odour

Sometimes molds are hidden and cannot be seen. A musty or earthy smell often indicates the presence of molds. But a smell may not be present for all molds. Even when you don’t notice a smell, wet spots, dampness or evidence of a water leak are indications of moisture problems and mold may follow.

 

How much mold is growing?

One way to know is to estimate the area of the mold.

Mold is considered to cover a “small area” if the patch is no larger than a square meter. There should be no more than three patches, each patch smaller than a square meter. Clean up small areas yourself using a detergent solution, household rubber gloves and a dust mask for protection. Refer to How to clean-up small problems for the procedure.

Small moldy areas in homes may become larger over time, if ignored, so it’s important to clean up and remove even small patches of mold.

The mold area is considered “moderate” if there are more than three patches, each patch smaller than a square meter, or there is one or more isolated patches larger than a square meter but smaller than 3 square metres (size of a 4 x 8 foot sheet of plywood). Assessment by a professional is recommended. You can clean up moderate amounts of mold but you must follow the proper procedures and use the proper protective equipment. Refer to Moderate area clean-up for the procedure.

A mold area is considered “extensive” if a single patch of mold is larger in area than a sheet of plywood. Being exposed to this much mold is not a good idea. Do not attempt to clean up large areas of mold yourself. You need professional help to determine why the mold is there in the first place and how to clean it up.

 

When should you seek professional help?

You may need professional help when:

  • There is a lot of mold
  • The home is very damp and moist
  • Mold comes back after repeated cleaning
  • A family member suffers from asthma or respiratory problems or other health problems that appear to be aggravated inside the home

 

How do you get professional help?

Contact your local CMHC office for a list of individuals who have completed the CMHC Residential Indoor Air Quality Investigator program. A trained IAQ investigator, who operates a private business and sells his/her services, examines the indoor air quality of your home and documents your concerns. He/she identifies the problems, finds their sources and suggests solutions in a written report. Recommendations are provided to you in an action plan that consists of various options to improve the indoor air quality in your home.

 

How to clean up mold problems

  • “Small areas” of mold can be cleaned with a detergent solution.
  • Wear a mask, safety goggles and rubber gloves.
  • Seek professional help if there is a lot of mold or if mold comes back after cleaning.

 

Bleach is NOT recommended

The presence of organic (humic) materials, the pH (acidity/alkalinity) of the water, the surface material and contact time affect the effectiveness of bleach for disinfection. Since these factors are not generally controlled, bleach cannot be relied upon for disinfection. The most compelling reason for advising against bleach is that fumes are harmful but in addition, overuse of bleach will result in increased releases of chlorinated effluents which can be harmful to the environment.

 

“Small area” clean-up

You can clean up “small areas” of mold (fewer than three patches, each smaller than a square meter) yourself. The minimum protective wear needed are:

  • safety glasses or goggles;
  • a disposable dust mask (3M 8210 or equivalent); and
  • household rubber gloves.

Infants and other family members with asthma, allergies or other health problems should not be in the work area or adjacent room during the cleaning.

 

Washable surfaces:

Scrub with an unscented detergent solution; then sponge with a clean, wet rag and dry quickly.

Using an unscented detergent will make it easier for you to detect residual moldy odours.

 

Moldy drywall:

Clean the surface with a damp rag using baking soda or a bit of detergent. Do not allow the drywall to get too wet.

Mold that comes back after cleaning is usually an indication that a source of moisture has not been removed. Seek professional help from a trained IAQ investigator.

 

“Moderate area” clean-up

  • Clean “moderate areas” of mold, but wear proper protective equipment and follow precautions.
  • Seek professional help if there is a lot of mold or if mold comes back after cleaning.

If you follow the proper procedures and use the proper protective equipment, you can clean up “moderate areas” of mold. “Moderate” means more than 3 patches of mold, each smaller than one square meter, or one or more isolated patches larger than one square meter but smaller than 3 square meters (size of a 4 x 8 foot sheet of plywood).

 

Safety precautions

  • Wear a disposable dust mask (for example, 3M 8210 or equivalent), glasses or safety goggles and household rubber gloves.
  • Isolate the area to be cleaned with plastic sheeting, taped to walls and ceiling.
  • Infants and other family members suffering from asthma, allergies or other health problems should not be in the work area or adjacent room during the cleaning.

A small clean up should take minutes (not hours) to finish. When the clean up takes hours to a day to finish, it is suggested that you upgrade to a better filter, such as a half-face respirator with charcoal cartridges. An exhaust fan installed in a window in the room being cleaned would prevent contamination of other areas of the house as well as provide ventilation.

 

General cleaning

Vacuum surfaces with a vacuum cleaner which has a High Efficiency Particulate Air (HEPA) filter or is externally exhausted. Scrub or brush the moldy area with a mild unscented detergent solution. Rinse by sponging with a clean, wet rag. Repeat. Dry quickly. HEPA vacuum the surfaces that were cleaned as well as surrounding areas.

 

Cleaning wood surfaces

Vacuum loose mold from wood surfaces using a HEPA or externally exhausted vacuum. Try cleaning the surface of the wood with detergent and water. Rinse with a clean, damp rag and dry quickly. If the staining does not come off, sand and vacuum the surface of the wood with a vacuum/sander combination. It is important to vacuum at the same time to prevent mold spores from being dispersed into the air. Note that wood affected by rot may need to be replaced.

 

Cleaning concrete surface

Vacuum the concrete surfaces to be cleaned with a HEPA or externally exhausted vacuum cleaner. Clean up surfaces with detergent and water. If the surfaces are still visibly moldy, use TSP (trisodium phosphate). Dissolve one cup of TSP in two gallons of warm water. Stir for two minutes. Note: TSP must not be allowed to come in contact with skin or eyes. Saturate the moldy concrete surface with the TSP solution using a sponge or rag. Keep the surface wetted for at least 15 minutes. Rinse the concrete surface twice with clean water. Dry thoroughly, as quickly as possible.

 

Moldy drywall

The paper facings of gypsum wallboard (drywall) grow mold when they get wet or repeatedly wet and don’t dry quickly. Cleaning with water containing detergent not only add moisture to the paper but also can eventually damage the facing. If the mold is located only on top of the painted surface, remove it by general cleaning (see above). If the mold is underneath the paint, the moldy patch and other moldy material behind it are best cut out and the surrounding areas also cleaned. This should be done by a mold clean-up contractor. New materials may become moldy if the moisture entry has not been stopped. If this is the case, replacement of the materials should be deferred until the source of the moisture is corrected. The affected areas should be temporarily covered with plastic sheeting and sealed at the edges.

Any areas that show new patches of mold should be cleaned promptly.

 

Dealing with an ongoing problem

Repair to the building envelope is required if moisture is entering the home from the outside. At the same time, steps should be taken inside the home to reduce the occupants’ exposure to mold.

 

Step 1 — Discard moldy or damaged materials

Wear a dust mask and gloves. Furnishings, such as mattresses, carpets, or sofas that got wet or have been stored in damp conditions should be discarded. Discard items that are no longer needed. Use this opportunity to reduce the amount of furnishings — this means fewer materials to absorb moisture and grow mold. Clothes and other items that have been cleaned should be stored in sealed plastic bags to prevent re-contamination.

 

Step 2 — Vacuum

Proper vacuuming reduces the amount of mold spores. All surfaces in the home (floors, walls, ceilings, shelves) and non-washable furnishings (such as sofas, chairs, etc.) must be vacuumed thoroughly.

 

Step 3 — Prevent

Keep moisture generated within the home to a minimum by conscientiously following the prevention steps presented in the next section.

 

Step 4 — Clear wet areas

Pull carpets and furnishings away from walls that get wet. Carpets and underpads that are moldy should be cut out and discarded.

 

Step 5 — Dry

Take steps to dry up areas that get wet. Monitor the relative humidity of the air. Use a portable dehumidifier, if necessary. Ensure that the condensate drain pan of the dehumidifier is emptied regularly.

 

Step 6 — Isolate

If the mold is limited to one area, isolate the area if possible. Cover the affected surfaces with plastic sheeting secured at the edges with duct tape. Note that this is only a temporary measure to minimize your exposure.

 

Step 7 — Clean

Healthy individuals can regularly clean “small” and “moderate” areas of mold, thus preventing these from getting out of hand, by following the safety precautions and cleaning guidelines.

 

Step 8 — Seek professional help

Consider seeking professional help from trained IAQ investigators to identify appropriate remediation steps inside the home. Removing large amounts of mold will require the services of mold clean-up contractors.

 

Preventing mold

  • Keep the home dry.
  • Find and fix water leaks.
  • Discard clutter and excess stored materials.
  • Clean and maintain the home regularly.
  • Encourage lifestyle practices that reduce moisture.

 

Basic steps to prevent and reduce mold growth

Mold needs moisture to grow. Controlling the moisture and keeping the home dry prevents the growth of mold.

  • Check your home for signs of moisture and molds.
  • Find out if water is coming in from the outside and if substantial moisture is produced inside the home.
  • Fix any water leaks promptly.
  • Think of the different ways moisture is produced inside the home (for example, cooking, bathing, plant jungle). Remove the moisture as it is produced by using exhaust fans. In the absence of fans, open windows for a short time, but note that the wind can push the moisture to other parts of the home.
  • Measure how much moisture is in the air. To find the relative humidity in your home, you’ll need a hygrometer. You can buy one at a hardware store or electronics store. A hygrometer costs from $10 to $60. Relative humidity in the home should be under 45 per cent in the winter (or lower to avoid condensation on windows). If necessary, use a dehumidifier to lower the relative humidity.
  • Reduce the amount of stored materials, especially items that are no longer used. Molds grow on fabrics, paper, wood and practically anything that collects dust and holds moisture.

 

Mold-proofing your home, room by room

 

Basement or crawl space

  • Reduce the amount of clothes, paper and furnishings stored in the basement. Discard badly damaged materials. Eliminate clutter to improve air circulation. Only washable items should be stored.
  • Dehumidify the basement during the warm months.
  • Avoid carpets on slab-on-grade or below grade floors.
  • Periodically clean the drain in your basement floor. Use half a cup of bleach, let it stand for a few minutes, then flush with plenty of water. Keep the drain trap filled with water.
  • Avoid standing water. Keep sump pits covered (you can use plywood wrapped with plastic).
  • Regularly clean and replace furnace filters. Use a pleated one-inch filter, not a coarse filter.
  • If you have a heat recovery ventilator (HRV), clean the filter inside the HRV often.
  • If you notice molds or signs of dampness, such as water on your windows or wet spots elsewhere, do not humidify. Disconnect furnace humidifiers that are no longer used.
  • If you have electric baseboards, vacuum the units, or have a professional clean them for you.

 

Laundry areas

  • Check that your clothes dryer exhausts to the outside.
  • Remove lint every time you use the dryer.
  • Don’t hang-dry laundry indoors.
  • Dry your laundry tub and washing machine after you use them.

Bathrooms

  • Check the bathroom fan to make sure it exhausts to the outside.
  • Turn the bathroom fan on when you shower. Keep it running for a few minutes after you finish your shower.
  • Take short showers.
  • Keep surfaces that get wet, such as the walls around the bathtub and shower, clean and dry.
  • If there is a carpet in your bathroom, remove it.
  • Check for water leaks.
  • Keep drains in good shape by removing debris from them.

To clean a drain:

  • Pour a handful of baking soda into it.
  • Add a cup of vinegar.
  • Put the plug in the drain.
  • Let the vinegar and baking soda work for about 20 minutes.
  • Run fresh water into the drain.

If the drain is still clogged, use a small plumbing snake.

Kitchen

  • If the fan over your stove exhausts outside, use it when you cook.
  • Minimize open boiling.
  • Keep your drains in good shape. Follow the steps in the Bathrooms section above.
  • There’s a drip pan at the back of the refrigerator. Pull the refrigerator out to clean the drip pan. At the same time, vacuum dust from the coils at the back of the refrigerator.
  • Check under the kitchen sink to make sure there are no leaks.
  • Take out the garbage daily to prevent odours and spoiling.

Closets and bedrooms

  • Get rid of clothes and other stored items that you don’t use. Keeping your closets and bedrooms tidy makes it easier for air to circulate — and harder for mold to grow.

Other parts of the home

  • A dehumidifier helps to reduce moisture in the home during the warmer months. Close the windows when the dehumidifier is running.
  • When family and friends come into the home, have them take off their shoes.
  • Vacuum often. If you are buying a vacuum cleaner, try to get one with a HEPA filter. (See below).
  • Clean hard floors with a damp mop.
  • Do not bring in furniture, clothing, books etc. that have been stored in a moldy place into your home.
  • Cut down the number of potted plants in the house—soil is a good place for mold.

Exterior

  • Regularly check the condition of the roof and exterior finish for any places where water might enter.
  • Make sure that eavestroughs and downspouts are connected and working properly and that they are free of debris.
  • Install downspout extensions to lead water away from the building.
  • Deal promptly with any problems that you find.

 

Frequently asked questions about mold

 

Should I have my house air tested for mold?

This is the question most frequently asked by homeowners who think their home may have a mold problem. Testing is generally not recommended for homeowners. Testing of moldy materials or an air sample identifies the types of molds that may be present but does not identify the cause/source of moisture. The type of mold does not change the procedures for cleaning up areas of mold less than 3 square meters. You have to clean up the mold and correct the problem irrespective of the type of mold. The cost of testing may be better spent hiring a professional investigator or fixing the problem.

 

Testing of a moldy material involves sending a swab, an imprint on a Scotch tape or a piece of the material to a competent laboratory. Air sampling requires specialized equipment. An air sample typically captures mold spores in a period of minutes. Since replicate samples must be taken due to variations in the airborne molds over time (even hours) and compared with outdoor samples, air testing is both expensive and time-consuming. Interpretation of test results may not be very useful, since there are no advocated “safe levels” of indoor molds and the results will not tell the health risks from the molds.

 

The air feels dry — can I humidify?

Before you add moisture to the air, measure the relative humidity. Air that feels dry may not be really dry. It may be moldy. High relative humidity (over 45 per cent) promotes the growth of molds and dust mites. The moisture in the air may condense on colder exterior walls where molds start to grow.

If your physician has advised you to use a humidifier in your child’s bedroom at night, monitor the relative humidity. Turn the humidifier on and off as necessary. In the morning, take steps to make sure the room gets dry. Clean and empty the humidifier after each use.

 

What advantages do HEPA vacuums provide?

Ordinary vacuums capture large particles only — small mold spores pass through the vacuum into the air. HEPA vacuums have special filters that capture small particles. A central vacuum cleaner which is exhausted to the outside also removes mold spores. A regular portable vacuum is useful only if its exhaust goes outside the home. Vacuuming removes settled dust that contains an accumulation of mold spores over time. Reducing the settled dust reduces molds.

Vacuuming with any vacuum cleaner (ordinary, central or HEPA) stirs dust and mold during the process. Wear a dust mask so you will not be breathing more mold.

 

Is vacuuming with a HEPA or externally exhausted vacuum cleaner recommended for serious mold problems only?

Vacuum regularly with a HEPA or externally exhausted vacuum cleaner to prevent the ongoing accumulation of dust and molds. The need for HEPA or external exhaust vacuuming increases with the severity of the mold problem.

If a furnishing has been wet at some time in the past or has been exposed to dampness over a prolonged period of time, vacuuming with HEPA or externally exhausted vacuum is unlikely to remove the mold growing beneath the surface. It is better to discard the item.

 

Where do you find a HEPA vacuum cleaner?

Vacuum cleaner dealers carry HEPA vacuums. Consider purchasing one as an upgrade to what you may be using. A HEPA vacuum is a good investment in the long term whether you have mold or not. A generic canister HEPA vacuum cleaner costs approximately $300. Brand name products of the same type may cost more. You may inquire if the dealer has a HEPA vacuum cleaner to rent. Contractors who clean up or renovate houses for mold should also have this equipment.

 

Does painting over a moldy surface take care of the mold?

Painting over mold only masks the problem. Paint does not kill the mold nor stop it from growing. Surfaces that are washable should be cleaned with a detergent solution, following the procedure suggested above, then allowed to dry. If you are going to paint, remove mold first.

 

Does cleaning stop the mold growth?

Mold will reappear until its source of moisture is removed. High moisture levels that are not corrected can make the molds grow back quickly. Cleaning is only a temporary but essential measure.

You can help by making a conscious effort to keep the home dry. Obviously, water must be prevented from entering the home. But you can help by controlling moisture that you produce.

 

How does one clean clothes that are moldy?

Non-washable clothing can be dry cleaned.

Wash clothes with a detergent solution to which a cup of bleach is added. Make sure the detergent you use does not contain ammonia. Repeat as necessary until the moldy odour is gone.

Clothes and other items that have been cleaned should be stored in sealed plastic bags to prevent re-contamination.

 

For more information

Health Canada (April 2008)

http://www.hc-sc.gc.ca/index_e.html

Enter “mold” or “mould” in the search box.

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10 Steps to a Cooler Planet

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Source: Canada Mortgage and Housing Corporation

Each Canadian generates, on average, five tonnes of greenhouse gases every year. Canada Mortgage and Housing Corporation offers 10 simple steps you can take to help keep our planet healthy and make your home more comfortable and healthier, while saving you money, and increasing your home’s resale value.

 

Step 1 — Switch to Public Transit

By simply switching from a mid-size car to public transit for your local travel, you can save up to 230 kg

of CO2 per year for every 1,000 km you don’t drive.

 

Step 2 — Think Smaller

Downsizing to a smaller car can eliminate 1,100 – 2,600 kg of CO2 each year — and save you dollars

at the gas pump!

 

Step 3 — Stay Grounded

For short out-of-town trips, taking the bus or train instead of traveling by plane could benefit both the

planet and your wallet.

 

Step 4 — Reduce Your Home Heating Bills

Improving the energy-efficiency of your home or even just lowering the thermostat by as little as 1°C

can reduce greenhouse gas emissions.

 

Step 5 — Reconsider Your Space Needs

Larger homes use a lot more energy so, the next time you move, ask yourself if a smaller home might

better fit your needs.

 

Step 6 — Buy green

When buying appliances, choose the most energy-efficient ones in order to save up to 400 kg of CO2

a year.

 

Step 7 — Stay out of hot water

Wrapping your hot water heater in a thermal blanket and installing low-flow shower heads and

water-efficient appliances can reduce greenhouse gas emissions.

 

Step 8 — Eat Your Vegetables

Adopting a diet that includes less meat can have a significant impact on your greenhouse gas

emissions.

 

Step 9 — Reduce, Reuse, Recycle

Cutting your garbage production by just one bag a week could save your family 300 kg of CO2 a year.

 

Step 10 — Remember: You Have the Power

Many utility companies are introducing Green Power options. By switching to green power, you can

reduce your home’s CO2 emissions.

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Key Questions Before You Start to Renovate

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Before You Renovate … Part 2 – Key Questions Before You Start

Source: CMHC

In our previous article “Before You Renovate … Part 1 – Why Renovate?” we spoke about the reasons why you would renovate and what you should do in preparation of your renovation. In this part, we will ask questions about the renovation to make you think about the many aspects of such an undertaking.

 

Key Questions Before You Start

  1. Is Your Renovation Practical?
  2. Your Money’s Worth?
  3. Is your Renovation Adaptable?
  4. And Healthy?

A successful renovation can be a dream come true, but without careful planning and management, it can be a nightmare. Key Questions Before You Start to Renovate

Be informed. Before you pick up a hammer, pick up a book or a video on home renovation. Talk to friends and neighbours who’ve renovated. Explore all the options, and remember the carpenter’s creed: measure twice, cut once. Mistakes on paper are easy to fix­ and inexpensive. Mistakes on the job are not. The following questions will help make sure you’re heading in the right direction.

 

1.) Is Your Renovation Practical?

While maintenance renovations aren’t really a choice — they’re part of owning a home and protecting your investment — lifestyle renovations and even some retrofit plans may not be practical or do-able.

Be clear about your expectations. Learn when to draw the line between what’s desirable and what’s essential.

 

Almost any renovation will add to, or at least protect, the equity in your home, but kitchen and bathroom renovations and painting normally provide the greatest payback when you sell. If your property taxes and insurance premiums go  up, the increase is usually small.

 

2.) Your Money’s Worth?

Over time, the money you save on heat, light and water by making your home more energy efficient may actually pay for the upgrades. Safety also pays. Insurance companies often decrease premiums when you improve wiring or fire prevention and improve or add a security system.

On the other hand, you can overdo a good thing. If you plan to move within a few years, is the renovation worth it? Will it pay to put on an expensive new addition when your house is in an area of more modest homes?

 

Payback Range of Typical Renovations

  • Bathroom renovation (75 – 100%)
  • Kitchen renovation (75 – 100%)
  • Interior painting (50 – 100%)
  • Exterior painting (50 – 100%)
  • Roof shingle replacement (50 – 80%)
  • Furnace/heating system (50 – 80%)
  • Basement renovation (50 – 75%)
  • Recreation room addition (50 – 75%)
  • Installing a fireplace (50 – 75%)
  • Flooring (50 – 75%)
  • Constructing a garage (50 – 75%)
  • Window/door replacement (50 – 75%)
  • Building a deck (50 – 75%)
  • Central air conditioning (25 – 75%)

Information provided by the Appraisal Institute of Canada, 2006.

 

3.) Is your Renovation Adaptable?

It’s best to take the long view when you’re renovating, because your needs are bound to change as time goes by. Try to build the most flexibility and long-term usefulness into your design.

For instance, some day you may want to convert a nursery into a home office. Installing the required wiring now will

save you time and money later, and will also add a selling feature if you decide to move.

This kind of planning is part of what CMHC calls FlexHousing. And it’s not just about preparing for future changes. By installing features such as lever door handles, non-slip flooring and extra-wide doorways, you make household activities more comfortable and safer today.

 

4.) And Healthy?

Planning a renovation is also an opportunity to apply Healthy Housing principles.

The goal of Healthy Housing is to reduce house-hold demands on the outdoor environment while providing a healthy indoor environment — by installing energy-efficient appliances, for instance, or by making the most use of natural light and passive solar energy in your designs.

Choose building materials that help conserve natural resources, such as salvaged lumber and products made with recycled content. Building materials should be durable, easy to maintain, and should not give off toxic gases once installed. Finally, choose and use construction techniques that minimize waste and debris.

The basis of Healthy Housing is to think of your home as an ecosystem­and a part of the larger environment. Incorporating Healthy Housing principles when planning your renovation will help protect your family and community, and could very well help you save money.

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Why renovate?

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Before You Renovate … Part 1 – Why Renovate?

Source: CMHC

 

Why Renovate?

Everyone has a different reason for wanting to renovate. Sometimes it’s the simple need for a change. Other times, the motivation is more practical. If you wake up one day with a puddle in the basement and a water-stained ceiling, you know   you have to act fast.

 

  • Lifestyle renovations improve your home­ and your way of life. They might involve building a sun room for pleasure, or converting unused attic space into living quarters to meet your changing needs.
  • Retrofit projects usually focus on your home’s shell or mechanical systems. Examples are upgrading your insulation, replacing your furnace, or putting on new siding.
  • Maintenance and repair renovations protect the investment you have made in your house through activities such as caulking windows, reshingling your roof, or replacing your eavestroughs.

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What is mortgage loan insurance

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Mortgage Loan Insurance

Source: Government of Canada Department of Finance

Mortgage loan insurance (which is sometimes called mortgage default insurance) is a credit risk management tool that protects lenders from losses on mortgage loans. If a borrower defaults on a mortgage, and the proceeds from the foreclosure of the property are insufficient to cover the resulting loss, the lender submits a claim to the mortgage insurer to recover its losses.

The law requires federally regulated lenders to obtain mortgage insurance on loans in which the homebuyer has made a down payment of less than 20 per cent of the purchase price (also called high loan-to-value mortgages). The homebuyer pays the premiums for this insurance, which protects the lender if the homebuyer defaults.

The Government backs insured residential mortgages in Canada. It is responsible for the obligations of Canada Mortgage and Housing Corporation (CMHC) as it is an agent Crown corporation. In order for private mortgage insurers to compete with CMHC, the Government backs private mortgage insurers’ obligations to lenders, subject to a deductible equal to 10 per cent of the original principal amount of the loan.

Since 2008, the Government has taken measured steps to strengthen the minimum standards for government-backed insured mortgages, including:

  • Requiring a minimum down payment of five per cent for owner-occupied properties and 20 per cent for speculative properties.
  • Limiting the maximum amortization period to 30 years.
  • Lowering the maximum amount Canadians can withdraw in refinancing to 85 per cent of the value of their homes.
  • Requiring that borrowers meet the standards for a five-year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and shorter term.
  • Withdrawing Government insurance backing on lines of credit secured by homes.

These standards apply for mortgages on residential property with four units or less. They do not affect multi-unit buildings with five units or more.

 

Further Measures have been initiated by the Federal Government

The Government announced further changes to the standards for government-backed insured mortgages. These measures would apply to new high loan-to-value mortgages backed by the Government.

Limit the Maximum Amortization Period to 25 Years

The amortization period is the length of time it will take to pay off the entire mortgage loan. It is usually much longer than the term of the mortgage. A typical mortgage in Canada may have a term of five years or less during which a specific fixed or variable interest rate will apply, and the mortgage can be renewed at the end of the term.

The measure announced today will reduce the maximum amortization period from 30 years to 25 years for high loan-to-value mortgages, which are backed by government insurance. (Banks will still be able to offer 30-year amortization periods on low ratio—20 per cent or more down payment—mortgages, if they so choose.). For any given mortgage loan, a lower amortization period would result in a moderate increase in the monthly payment along with a significant reduction in the total interest paid over the amortization period. The following table illustrates the benefit of reducing the amortization period from 30 years to 25 years for a mortgage loan of $350,000.1

Interest Rate 30-Year Amortization—Monthly Payment 25-Year Amortization—Monthly Payment Difference in Monthly Payment—
25-Year vs. 30-Year Amortization
Interest Savings—25-Year vs. 30-Year Amortization
3 per cent $1,472 $1,656 $184 $33,052
4 per cent $1,664 $1,841 $177 $46,832
5 per cent $1,868 $2,036 $168 $61,765

 

Lower the Maximum Refinancing Amount to 80 Per Cent of the Loan-to-Value Ratio

Borrowers can refinance their mortgage and increase the amount of the loan secured against their home. The measure announced today will reduce the limit on refinancing from 85 per cent to 80 per cent of the value of the home. Reducing the maximum refinancing amount to 80 per cent follows the change from 90 per cent to 85 per cent in March 2011. Reducing the maximum loan-to-value ratio on refinancing will encourage Canadians to keep equity in their home and save through home ownership.

As an illustration, for a home valued at $350,000, refinancing at 85 per cent would allow the homeowner to access up to $297,500, whereas refinancing at 80 per cent would allow the homeowner to access up to $280,000. The lower refinancing limit means homeowners will keep an additional $17,500 in the equity of their home and at the same time save up to $5,200 in insurance premiums.

Limit the Gross Debt Service Ratio to 39 Per Cent and Total Debt Service Ratio to 44 Per Cent

There are two ratios commonly used to measure the risk associated with household debt: the gross debt service (GDS) ratio and the total debt service (TDS) ratio. The GDS ratio is the share of the borrower’s gross household income that is needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. The TDS ratio is the share of the borrower’s gross income that is needed to pay for home-related expenses and all other debt obligations.

Lenders must review a borrower’s debt service ratios before granting a mortgage loan. In 2008, the Government announced a 45 per cent TDS limit as part of the adjustments to the rules for government-backed insured mortgages. The measure announced today will limit the GDS ratio to 39 per cent and lower the maximum TDS ratio to 44 per cent. Setting a GDS limit and lowering the TDS limit will help prevent Canadian households from overextending themselves and reduce the number of financially vulnerable households.

Limit the Availability of Government-Backed Insured Mortgages to Homes With a Purchase Price of Less Than $1 Million

The measure announced today will establish that government-backed mortgage insurance is only available for a new high loan-to-value mortgage if the home purchase price is under $1 million.

Establishing a maximum allowable price will ensure that government-backed mortgage insurance operates the way it was originally intended: to help working families and first-time homebuyers. According to the Canadian Real Estate Association, the national average price (based on Multiple Listing Service sales activity) for a home sold in May 2012 was $375,605. This measure is expected to have a negligible impact on working families and first-time homebuyers as the vast majority of these borrowers purchase properties priced below the threshold. Borrowers purchasing homes priced at or above the maximum allowable price would require a down payment of at least 20 per cent.

Implementation of the New Framework started on July 9, 2012.

 


1 The mortgage loan amount used in the illustrative example represents approximately the size of the mortgage loan needed for an average house in Canada. According to the Canadian Real Estate Association, the national average price (based on Multiple Listing Service sales activity) for a home sold in May 2012 was $375,605.

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