The Penalty you Pay When you Bite the Bait of the Low Rate

I just witnessed the highest payout penalty quote any of my clients have ever received in 8 years of business. The culprit: HSBC, the penalty: $91,000. You read that right –  if a doctor at one of Toronto’s trauma centers wants to break his mortgage to switch to a lower rate, it will cost him $91,000.

Now, this outrageous penalty is only so large because his mortgage is approximately $2,000,000. I know what you’re thinking – this is a very large mortgage but translate this to an average Toronto-sized mortgage of $500,000 and you’d be paying approx $22,750 – not chump change for the majority of the Canadian population.

Flip to one of my other clients, also a very successful professional with a $900,000 mortgage. In March we broke his original mortgage with rate of 2.85% fixed to lock him into a 2.29% rate with a local credit union. The savings greatly outweighed the costs and we ended up netting him about $10,000 in savings over his remaining 4 years of his term. Fast forward to today and rates have dropped AGAIN and we are going to break the mortgage we gave him in March and pay a $5K penalty to save another $10,000 over the next 4.5 years.

The penalty on your mortgage, and how your prospective lender calculates it will either pound you into submission, or open up an avenue to future savings. this is why you want to speak to someone who knows the ins and outs of the industry and not just bite on the rate. Unfortunately, lenders, amazon, facebook and google are learning very quickly how to manipulate you to act in the best way they see fit. I’m here to help you defend yourself and your money.

Why Some Very Successful People Still have to Pay Higher Rates

In the mortgage and other credit industries, I often find that clients who are very successful still have to pay high rates. Some of my clients don’t understand why and for this reason I think it’s worthwhile to teach you about how lenders evaluate risk and expect to be compensated for it, with higher rates. I’ll break down a few different archetypes of clients that need to pay higher rates.

The Classic Poor Credit

The classic poor credit client is someone who has not paid their bills in a timely manner, declared bankruptcy, or has been denied credit more than once due to high obligations as compared to their available credit. Institutional lenders need to charge these clients a higher rate to ensure that they are compensated for the additional risk presented by a client who has a history of not paying in a timely, comprehensive manner. The threshold for many lenders is about 640. If you are below the line, you have to pay a higher rate, and are often not offered options with your mortgage unless you pay an even higher rate.

The Self-Employed Tax Evader

A lot of successful self employed individuals including lawyers, consultants, dentists, accountants, and construction contractors, have to pay higher rates on their credit. Why? — They don’t like to pay taxes. Who does? As a self employed individual with stellar credit, many people try to expense everything they possibly (and legally) can in order to claim that they have the lowest possible taxable income. Some of the things you can write off include meals (with clients*) gas, rent for a home or office, supplies, gifts for clients and more. Some lawyers make less than $40,000 per year on paper. It is because people show such little income that when they want to buy that $800,000 home in Toronto, their bank refuses to give them financing at a low rate. Banks are handcuffed by their strict borrower profiles, which is why many of these clients head to mortgage brokers to sort out their home financing.

The Newly Employed or Promoted Homebuyer

This poor fellow is simply guilty of not making enough money for a long enough time. I have a friend who quit his high paying IT job to work as a consultant. He is making more money than he was in the past BUT, since he is now self-employed (and expensing a lot) it looks like he doesn’t make the big bucks anymore. If you just got a raise, or work in an industry where your 2nd and 3rd years are going to bring you significantly more income, you may find yourself not being able to borrow enough money to buy your home. When your employment is in flux, you’ll have to pay a higher rate to justify a lender taking a risk on you. What if you lost your new job at your higher rate of pay? How would you make your loan payments?

These are just some examples of clients who need credit and mortgage advice. I hope you learned something here, and am always available for further explanation in the comments.

Stay tuned for more finance.

Beginner’s Luck: An Overview of Canada’s First Time Home Buyer’s Plan

In 1992 the federal government introduced a plan to allow more Canadians to become homeowners. Since then over 2.6 million people have taken advantage of the tax breaks and incentives that the government offers to those purchasing a qualifying home. In order to benefit from this initiative, it is critical to understand what benefits are available and how you can qualify for them.

There are three government programs that benefit first time home buyers (FTHBs) and they have different criteria and nominal values.

The three programs are:

  1. Land transfer tax rebate – a pro-rated rebate of up to $4000 ($8,000 in Toronto) based on home price)
  2. FTHB RRSP plan – allows up to $35K withdrawal from each person’s RRSP for down payment
  3. FTHB tax credit – a credit of $750 (all parties combined) from income taxes

These three benefits are a great way to let the government reward you for helping drive Canada’s housing market and the overall economy. The land transfer rebate and tax credit are obvious opt-ins for most folks but the RRSP Plan benefit really depends on your tax bracket at contribution time versus your bracket at withdrawal time. Taking advantage of the RRSP withdrawal will allow you to reduce your (current) tax liability by a larger amount as your annual income increases. Actually I used to believe this benefit was greater than it actually is. The real benefit of the RRSP FTHB benefit is the tax not paid on the withdrawal for the term of the loan and the resulting savings on money that does not have to be borrowed under the mortgage. For example, a $35,000 withdrawal with a 30% tax rate yields a benefit of $10,500 of tax that is not required to be paid and can therefore reduce the mortgage amount. If the mortgage rate is 2.5%, then the actual benefit of the withdrawal is $262.50 for the first year. This benefit reduces over time as the loan must be repaid over 15 years.

Who is a first time homebuyer?

The CRA does not use identical criteria to determine eligibility for each benefit listed above. The criteria which are common however, are quite simple. Below is a short list of the basic criteria, with links to the CRA website for more comprehensive definitions befitting more complex situations.

FTHB Eligibility:

  1. You must purchase a qualifying home (most homes qualify, more on this here) and intend to occupy it as your principal residence within 1 year of your purchase date. You may also buy the home for a relative with a disability and not occupy it yourself.
  2. For Land transfer rebate – You may not have owned an interest in a home anywhere in the world previously
  3. For Tax credit and RRSP – You may not have lived in a home owned by you or your spouse in the previous 4 year period as defined here

Other useful rules criteria:

  1. RRSPs must be in your account for 91 days before you withdraw them for your deposit. The funds must also be paid back to your RRSP over the next 15 years.
  2. You must build or buy a qualifying home before October 1st of the year after you withdraw the RRSP funds
  3. The government wants you to claim these benefits all in the same tax year.
  4. You can own a rental property and still be considered a FTHB for the Tax credit and RRSP

This is all well and dandy but…

How does one actually receive these benefits?

All of these benefits can be claimed at the time you would have incurred the tax liability.

  1. Land transfer tax rebate – Apply either electronically or by paper form to the Land Registry Office. The lawyer who closes your purchase and/or mortgage will usually do this for you.
  2. FTHB RRSP plan – Fill out and submit a T1036 to the institution where you withdraw your RRSPs
  3. FTHB tax credit – Claim this credit on line 369 of your yearly income tax return

Some interesting facts that might surprise you:

  • One could qualify as a FTHB under the RRSP Plan more than 3 times with enough persistence.
  • Your spouse could have owned a home that they are selling this month, and as long as you have not lived in it, you are entitled to receive some FTHB benefits.
  • You don’t have to spend the RRSP funds on your down payment if you’ve got $25,000 cash already going into the home. You could spend it on closing costs, renovations, furniture, or whatever you like because your cash is replaced by the withdrawn funds.

I am always available to discuss the contents of this article by phone or email at 416-371-2077 or I also maintain a blog at for all your financial and borrowing needs.

Edit: After posting this article I was asked to weigh in on Four essential questions for the FTHB by the editors at Typical Geek, an honour I gladly accepted.

Useful Resources:

Income Tax Calculator:

CRA – Home Buyer’s (RRSP) Plan:

CRA – Home Buyer’s Tax Credit:

Ministry of Finance – Land Transfer Tax Credit:


Solving or Escaping the New Uninsured Stress Test

Many Canadians have been affected by the recent shift in the real estate market as efforts of the Liberal government have driven prices down. With the majority of my clients being in the GTA, I watched first hand as listing prices fell, appraisals came in at lower than expected and people with good credit and income were forced to take higher rates due to the inflexibility of Canada’s A lenders.

 You may be an investor, a first time buyer, or someone looking to take some money out of your home, but everyone has the same questions: How can we get the money we need to close our deal? I’ve been asked about 95 times since the news broke and I thought I’d lay out a few solutions based on popular cases where the new rules have put pressure on consumers.

 The Problem:

The newest in a slew of rules cranked out to help cool the housing market is OSFI’s implementation of a stress test for uninsured mortgages. The change will require uninsured mortgages (those with more than 20% down) to be qualified at a stress test above the contracted rate of the loan. In 2017 you could borrow qualifying at 3.2% for your mortgage if that was the actual rate the lender is offering you. In 2018, you will have to earn enough income to meet the debt servicing requirements as if your rate were 2% above your contract rate or 5.2%! The effect of this extra stress test is that borrowing power is reduced by about 15-18%. To put this into some round figures, if you qualified for a $500,000 loan in 2017, you’d only qualify for $420,000 in 2018.

The Scenarios and Solutions:

I’ve come up with a few broad solutions for folks in different situations to highlight options available to you.

 Bought a pre-construction property

If you bought a pre-construction property and need to close next year, you likely won’t be able to lock in your mortgage before the rules come into effect on Jan 1, 2018.

 Short term: Some folks will inevitably abandon their deals and decide instead to sell their property. If you are able to assign the purchase agreement to someone else that is an option, although many lenders treat these as special cases and wont lend to your buyer on more than the builder’s price. If you have to close the property to sell it at the new market value, you can consider a private mortgage to close the deal and hold it for a short term until the sale and closing.

 Long term: If you want to lock in for a longer term and intend to live in or hold the property, you may be forced to a B lender to allow you to show less income for a higher amount of loan. These lenders also often allow secondary financing to get you all the funds you need even if they won’t provide them all. Rates at B lenders are usually only 1-2% higher than AAA lenders and they offer much more flexibility in their lending practices.

 Buying a resale property

If you are buying a resale property and can lock in your mortgage before the Jan 1 2018 deadline, you should likely be able to skirt the new stress test but look out for lenders to require compliance before the actual rule comes into place.

 Longer Amortization

If you cannot lock in before the rules change, you may be able to qualify for more funds if you amortize your loan for a longer period. As of now a few lenders still offer 35 year amortizations which effectively


TD is one lender that has said that they will honour pre-approvals for 120 days from the time of application into the new year. This can make an impact for those folks looking to borrow larger amounts than they would qualify for under the new rules.

How Mortgage Lenders Treat New Build Homes

I have had a lot of questions from realtors and their clients regarding the way mortgage lenders treat purchasers of new build homes in Ontario. There are some key points that are different for new builds than existing ones that I would like to point out. I’ll structure the discussion chronologically.


Typically your builder will ask that you bring in a pre-approval as part of your signing the purchase and sale agreement for a new build. This is different than buying an existing home because new builds often close months and sometimes years down the line which usually extends past the validity period of a typical pre-approval. For my clients I have written letter of pre-approval in house and had them accepted but I have run into the odd time where a builder requires the pre-approval from their on-site mortgage lender. You’re never locked into anything with a pre-approval, so its no issue to get one from their exclusive lender and then find the best mortgage for you close to your closing.

 Borrowing for the deposits

You will not find that a mortgage lender will lend you money for the deposits on a new home or an existing one for that matter. Lenders are only able to offer mortgages using real property as security. If you don’t have the title yet, you can’t get a mortgage. That being said, it is very popular for folks to use a line of credit or other similar loan to put down some of their deposit money and spend time paying it back before closing.

 Buying an assignment

If a builder permits assignments, you may want to buy or sell one as part of your financial plan. Financing assignments is possible but the choices are limited. Some lenders will only finance the original purchase price and some even require that the assignment be to a family member or non-arm’s length person. The mortgage broker industry does have lenders that will lend on the appraised value, which is why you should have a talk with a broker (me of course!) in a case like this.

 Finishes and other add-ons

Many builders leave the door open to buyers to select finishes and add-ons later in the construction phase of the build. If your builder is able to, always request that they amend your agreement of purchase and sale to include these finishes, and the mortgage lender will gladly finance them.


Appraisals for new builds usually occur in the final two weeks before closing because that’s when the property is complete enough to have an appraisal. Typically lenders require that the property is 97% complete for it to be appraised and of course 100% complete for when the loan is advanced.

 Builder’s development fees and adjustment costs

Many people are surprised by the fact that mortgage lenders typically do not finance any of the final adjustment costs. The rule of thumb is that if it is not a component of the purchase price, it will not be financed. This is important because some contracts can allow for tens of thousands in final adjustments that need to come out of your pocket to close the deal. Make sure you and your lawyer have discussed the total amount of funds required to close the deal.

Why You Should Check Your Credit Score Today

I’ve been a busy bee over the last few months. With the development and launch of two new websites next month, and the move to a new firm, the summer has had it’s challenges and kept me away from writing. Today however I have some information I think will directly benefit you, and I didn’t want to wait to share it.


Why you should check your credit score today

 Credit is something that is taken into account any time you want to borrow money. There is a certainty regarding your credit which is this: The worse your credit is, the higher the interest rates you pay are. If you want to ensure you pay the least possible, keep reading.


What happened?

 I had a friend ask me to pull his credit, which is a standard operation for every client of mine. What we discovered was that he had a debt in collections. The just under $500 debt had been delinquent for more than a year and it was for an account he had never heard of. We did some research and found out that he had co-signed a loan for a friend who was new to Canada a few years back. My friend never received any bills, or notices, but was on the hook if the person defaulted for the loan which was the eventual result. This debt sat on the credit report for more than a year, pummeling his score to below the bank’s threshold over that time period. The result was that my friend was being denied for the most basic credit applications, despite having an income more than $70K per year and almost no debt.


The solution

 After contacting the old friend who was now living across the country, we were able to have the debt paid in full. This is just the first step in the months long battle to reclaim precious credit points lost. To complement and accelerate to rehabilitation of credit, I suggested a secured credit card from Home Trust, which will establish another trade line to draw from and earn credit depth.

 If you’re looking at borrowing money in the future, the time is now to check your credit report and make sure you’re in shape to pay the least amount of interest.


Stay tuned for links to my new websites and future updates from

Bank Hack 3% interest 1% loan


Bank Hack: Earn 1% on as much as you can borrow unsecured from Scotiabank

I am always looking to make a quick easy buck. There are plenty of opportunities to do so if you know the promotions in the personal finance marketplace. I wrote an article last week about credit score improvement and this week I have found a Bank Hack that could earn you some pocket change, and improve your credit with 2-4 hours of work.

The borrowing play:

Scotiabank has a promotion whereby you can borrow on their Value Visa for 0.99% for the first 6 months.  There are many terms and conditions, which are mostly standard, the card has a fee of $30/year unless it is part of a Scotia Total Equity Plan (STEP) mortgage. The maximum credit limit for each card is $75,000 but you can have more than one if you qualify. For this hack you’ll want to get approved for as much as possible.

The investing play:

Equitable bank is a bank licensed mortgage lender looking to grow in the residential and commercial mortgage business. They are starving for your deposits, and have offered what is the best bank account I have ever heard of. The offering consists of a 3% interest rate bank account with zero fees for most things, 5 free interac e-transfers per month and more. As part of this Bank Hack they will give you $25 for opening your account by using the referral code mentioned in the next step.

The set up:

  • Open a High interest savings account at Equitable bank (, and use a referral code to receive $25 (no money to me, only account holder L) Referral Code: 968833
  • Have a seat with a Scotiabank advisor and tell them about your intentions to get a Value Visa at as high a limit as you qualify for.
  • Use a Cash Advance to make out a cheque from yourself to yourself for deposit into the EQ Bank Savings account (through their app)
  • Set the EQ Bank account to make a monthly recurring payment to your Scotiabank Value Visa for your minimum payment
  • Create a set of payments (max $5,000 each) to close out your position at the end of the promotional period on the Visa.


5)  Move your Value Visa balance to another card with a promotional rate and repeat.

The expected return:

With a $20,000 Value Visa limit, you can earn $195 for less than 4 hours work.

If you can get a Value Visa with a $50,000 limit, you stand to earn $495 over 6 months after bonuses and fees.

If you have a STEP mortgage with a $150,000 line of credit, you stand to earn $1,525 over that same period.

It’s not exactly a free lunch but it’s well worth the work and as risky as having money in a bank account.

You’re welcome!

What determines your credit score? –  And how to be proactive about improving it

An Equifax credit score is a valuable resource to you that is surprisingly misunderstood by many Canadians. Scores range from 300-900 while most mortgage lenders prefer a score above 650. Almost every time you need to apply for some sort of credit, a lender will pull your score. You can best prepare yourself to ensure you’re always granted access to the credit you need by understanding the strategy to maintaining a good score. The most crucial step to formulating a good credit strategy is developing an understanding of how your score is determined. This article will cover the 5 factors that make up your score and offer tips to keep your score high.

Payment History – 35% of your score

Equifax receives reporting from creditors in Canada regarding the timeliness of payments on a particular account. There are various codes for different types of credit, revolving, installment, and open all of which are paid differently. The timeliness of your payment is noted right next to the type of credit it is. A code of R1 for example means you pay within 1 month of receiving your statement. When you get to R2-R5 rating, you have not been paying your account on time and are penalized in your score for doing so. This realization gives rise to the number one rule of maintaining good credit. Always pay your bills on time.

Utilization – 30% of your score

The credit report also features the current balance of each account along with its high credit limit. The high credit limit refers to the maximum amount of credit you are allowed on that trade line. As your utilize proportionally more of the credit that is available to you on a single account, the system will negatively impact your score. Say you 2 lines of credit for $10,000 each and you need $9,000 to buy a car. It is a much better strategy to borrow a smaller proportion, say $4,500 from each line of credit as opposed to $9,000 from either one exclusively.

Length of Credit History – 15% of your score

The length of credit history refers to the amount of time you have been using credit facilities. If you’re new to Canada, or a young person looking to borrow money, you’ll want to make sure that you start to use credit as soon as it is available to you. Starting off with a credit card, secured with a deposit if need be, is a great way to build a strong credit file. Lenders are looking for mature credit, and the longer you operate within the good practices, the higher your score will soar.

New Credit Inquiries – 10% of your score

There is a very prevalent myth that pulling your credit is bad for your score. While this does hold some truth, for the majority of cases numerous credit pulls (3-4) in a short period of time are just fine. Different creditors are tagged by Equifax as offering certain products and the system has protocols to avoid penalizing you for multiple credit hits. A prime example of this is their process called de-duping, whereby credit hits coming from one agency multiple times is mitigated and does not adversely affect one’s score as much as is widely believed.  

Credit Mix – 10% of your score

Equifax notes that there is a strong correlation between consumers who have a diverse mix of credit facilities and those who pay reliably and on time. As I mentioned earlier there are different types of credit such as revolving, open, and installment, but there are also a wide variety of credit-offering companies. As part of a balanced credit profile, it is wise to use credit of different types and sources.

Take Aways

  • There is no quick fix to improving your credit, but time and best practices as mentioned here will help your score move up as quickly as possible
  • There are credit myths that you should be aware of so as not to be confused and stray from the optimal path
  • As a mortgage agent I’d be happy to pull your credit for free and walk you through it before you make a critical borrowing decision
  • No quick fix, but methods to make sure you’re building your score each month

Broker Beats Bank

I’ve wanted for a while to publish a chart highlighting the rate differences between Canada’s different mortgage lenders to show the vast spread between their pricing at any given time. I found this a difficult task because most lenders don’t advertise their prices openly or accurately. Lost somewhere in the posted rates, discounted promotions, and bait and switch quoting of insured mortgage pricing, lay the truth: If you’re not looking at more than one lender, you’re probably getting ripped off.

To mitigate a lack of quality and reliable data, I was forced to collect what data was available to my brokerage over time to deliver a meaningful comparison between the lending institutions. Fast forward 2 years and we are finally here. To construct a fair comparison and in the interest of simplicity I used the pricing of 5 year fixed rate uninsured residential mortgages with “full” privileges. Many mortgage rates are quoted as insured, or with prohibitions on activities such as the ability to break the mortgage. Below is a table that shows the rates that were available to mortgage brokers between January 2014 and the end of October 2015. The ‘Savings’ column hammers out a salient point: There is almost always a better place to go than your bank when it comes to rates.

5 Year Fixed Rates for Uninsured Residential Mortgages

In case you’re a graphical person, the blue line below represents the savings of the best rate over the best bank, and the group of trend lines above indicates the pricing of a few banks and the best rate which had a downward trend from January 2014 to October 2015.

As of today, November 14, 2015 our best rate is 0.25% cheaper than the best bank rate. This will save you $250 per $100,000 of your mortgage per year. For a $350,000 mortgage that is savings of $875 every year. Why would you pay more?

As always, call me any time to find the best products and rates for your financing.

David Steinfeld, Mortgage Agent 416-371-2077

Getting Your Notice of Assessment Online

I hate paying taxes.

We all do, but doing so is one of the certainties of life. There is a bright side to paying your taxes, your proof of income filed with the government, in the form of your notice of assessment is one of the most preferred and rock solid proofs that you can afford a mortgage and pay a better-than-the-bank low rate.

If you’re like many of my clients and the thousands of other Canadians looking for a mortgage this year, you may find yourself in an awkward position, asking yourself, “Where the heck are my NOAs?”

I am writing this post for one reason: to help you get your NOAs as quickly and conveniently as possible. To this end there is a very valuable tool that you can use to access your NOAs and get a copy at home – your computer and internet connection!

Step 1: Navigate to the CRA’s Website on your Device (Computer, Phone, Tablet)

Go to the Canada Revenue Agency’s  – My Account web page here.

On this page you will see that you have a choice to sign in through a sign in partner, or register with the CRA directly. If you are signed up for services with one of the partners, follow the instructions to log in to your account with that provider and then you will be redirected to the CRA webpage for further instructions. If you do not use any of the partners shown, click CRA Register, and sign up directly on the CRA website. You will need your Social Insurance Number (SIN) and your most recent tax return to sign up.

Step 2: Register and Confirm (Takes a few days)

Follow the on screen instructions asking you to confirm your private information to help prevent fraud. If you are successful, you will have to wait 5-10 business days for the CRA to mail you a security code to complete the last step of the registration process. When you open this piece of mail, simply revisit the CRA site, and input the security code to gain access to all your government documents at the CRA.

Step 3: Find your Documents and Other Resources Online

Once you have confirmed your account, you will have access to many CRA forms and documents.

Here is a great list of things you can do in this portal:

  • Access/ Print your current and old tax returns and CRA assessments
  • Set up direct deposits for GST/HST/Child tax benefits
  • Pay your taxes online through pre-authorized debits
  • Check any credits you are going to receive (GST/HST/Child tax benefits)
  • Check for contribution room on your RRSP and TFSA accounts
  • Change personal information like your address, marital status, or authorize representatives for your CRA needs

Links and information:

My account for individuals

Sign in partners for the CRA’s ‘My Account’:

  • BMO Financial Group
  • Scotiabank
  • Tangerine
  • TD Bank Group

To Register with the CRA for ‘My Account’ you’ll need

  • Social Insurance Number (SIN)
  • Past tax returns (usually last year’s)