Blog Post

The Importance of Disability Insurance

Katherine Martin • Mar 28, 2016

It took a journey back into the archives to find this little beauty of a video by Canadian finance expert Preet Banerjee.

Before giving Ted Talks, or appearing regularly on CBC Marketplace, or any of the other countless things Preet has done, he had some smart things to say about disability insurance. Certainly worth a watch!

If you are in the process of buying a home and/or thinking about protecting yourself, feel free to contact me anytime! I will make sure you are well taken care of.

Transcript

Hi everyone, my name is Preet Banerjee, and today we’re going to talk about disability insurance. But before we get started, I wanted to share some other feedback that I received from the first video blog entry. Essentially I was told, do not wear just a black t-shirt, do not call it Mostly Money Mostly Canadian, and try not to be such a tight ass.

Okay, so what’s the deal with disability insurance? You insure your house, you insure your car, and might even injure every single out electronic gadget that you own. But what about your single biggest asset; your ability to earning income for the rest of your life.

Let’s put that into context: Assume a university graduate starts their working career earning forty five thousand dollars per year, assuming raises and promotions over time, perhaps their salary grows by 4% per year. Over 40 year career, that translates into over 4.25 million dollars. Overtime part of that is slowly converted into tangible assets and investments. While you are younger your future potential earnings is your biggest asset. How well-protected is that asset?

For example, life insurance protects your family’s lifestyle if you die. Clearly your income stops but a lump sum death benefit is there to provide for your family. When you die, you don’t want your spouse or the rest of your family to be burdened unnecessarily if you can avoid it. So perhaps, that lump sum benefit can be used to pay off the mortgage, help with the bills that need to be paid, maybe it’s for education for the kids. But what happens if you don’t die? What happens if you become sick or injured and don’t have an income anymore? Your family is not going to get that life insurance lump-sum death benefit and remember to collect that lump sum death benefit you have to be dead, so that’s off the table. You’re alive, you’re just unable to work, what do you do?

Unfortunately the sad realization for many families is, they might have been better off if they had indeed died. Because they’re still alive but they don’t have an income and they still have all those bills to pay. The mortgage still needs to be paid, other bills around the house all still need to be paid, and quite frankly depending on your injury or sickness you might need to afford special assistant devices. What could end up happening is a downsizing of your lifestyle, or quite frankly you can go broke.

According to Canada Life you have a 1 in 3 chance at becoming disabled for more than 90 days before the age of 65 and the average length disability that last more than 90 days is 2.9 years.

Ask yourself this question: Could your finances survive 2.9 years of no income? Now if you have a benefit plan at work that provides for disability insurance coverage, make sure that you take a look at that book and see exactly what that coverage is. Some benefit plans only pay for five years, others pay until you turn 65. The percentage of income that’s replaced also varies, so dig out that employee handbook and look it up and see how much coverage you actually have. If you find that you don’t have enough or as much as you would like, talk to an insurance agent. They can create a pop-up plan that would piggyback onto your existing coverage. And if you have no disability insurance whatsoever, run (safely) don’t walk to your insurance agent to talk about what your options are.

Simply talking to an insurance agent doesn’t mean you have to sign up for a policy but I promise you one of the biggest mistake people make is not having disability insurance coverage.

Now, you should be prepared for some sticker shock, disability insurance policy’s don’t tend to be the cheapest insurance policies but remember the asset that you’re protecting is potentially one is your single biggest asset, so it would only make sense that it would cost more. a typical insurance policy for disability coverage might be a hundred dollars a month, it could be a little bit less and could be substantially more. It really depends on the type of work you do, and your health situation as well as other factors that you’re agent can talk to you about. Remember, always seek the advice of a qualified professional for your own situation. These are just general tips to bring you up to speed on that very basics.

Well that’s it for this video, I hope you have a better understanding now of disability insurance coverage. My name’s Preet Banerjee, don’t forget to subscribe to my YouTube channel for more money tips.

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Mail

Katherine Martin

Origin Mortgages

Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842

Why Downpayment Source Matters

By Katherine Martin • 01 May, 2024

If you’re looking to purchase a property, although you might not think it matters too much, the source of your downpayment means a great deal to the lender. Let’s discuss the lender requirements, what your downpayment tells the lender about your financial situation, a how downpayment helps establish the mortgage loan to value. Anti-money laundering Lenders care about your downpayment source because, legally, they have to. To prevent money laundering, lenders have to document the source of the downpayment on every home purchase. Acceptable forms of downpayment are money from your resources, borrowed funds through an insured program called the FlexDown, or money you receive as a gift from an immediate family member. To prove the funds are from your resources and not laundered money from the proceeds of crime, you’ll be required to provide bank statements showing the money has been in your account for at least 90 days or that you’ve accumulated the funds through payroll deposits or other acceptable means. Now, if you’re borrowing all or part of your downpayment, you’ll need to include the costs of carrying the payments on the borrowed downpayment in your debt service ratios. If you’re the recipient of a gift from a direct family member, you’ll need to provide a signed gift letter indicating that the funds are a true gift and have no schedule for repayment. From there, you’ll need to show the money deposit into your account. Financial suitability Lenders care about the source of the downpayment because it is an indicator that you are financially able to purchase the property. Showing the lender that your downpayment is coming from your resources is the best. This demonstrates that you have positive cash flow and that you’re able to save money and manage your finances in a way that indicates you’ll most likely make your mortgage payments on time. If your downpayment is borrowed or from a gift, there’s a chance that they’ll want to scrutinize the rest of your application more closely. The bigger your downpayment, the better, well, as far as the lender is concerned. The way they see it, there is a direct correlation between how much money you have as equity to the likelihood you will or won’t default on their mortgage. Essentially, the more equity you have, the less likely you will walk away from the mortgage, which lessens their risk. Downpayment establishes the loan to value (LTV) Thirdly, your downpayment establishes the loan to value ratio. The loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. So, if you’re buying a home for $400k, the lender can lend $380k, and you’re responsible for coming up with 5%, $ 20k in this situation. But you might be asking yourself, how does the source of the downpayment impact LTV? Great question, and to answer this, we have to look at how to establish property value. Simply put, something is worth what someone is willing to pay for it and what someone is willing to sell it for. Of course, within reason, having no external factors coming into play. When dealing with real estate, an appraisal of the property will include comparisons of what other people have agreed to pay for similar properties in the past. You’ll often hear of situations where buyers and sellers try to inflate the sale price to help finalize the transaction artificially. Any scenario where the buyer isn’t coming up with all of the money for the downpayment, independent of the seller, impacts the LTV. All details of a real estate transaction purchase and sale have to be disclosed to the lender. If there’s any money transferring behind the scenes, this impacts the LTV, and the lender won’t proceed with financing. Non-disclosure to the lender is mortgage fraud. So there you have it; hopefully, this provides context to why lenders ask for documents to prove the source of your downpayment. If you’d like to talk about mortgage financing, please connect anytime; it would be a pleasure to work with you.

Porting Your Mortgage

By Katherine Martin • 24 Apr, 2024

Porting your mortgage is when you transfer the remainder of your current mortgage term, outstanding principal balance, and interest rate to a new property if you’re selling your existing home and buying a new one. Now, despite what some big banks would lead you to believe, porting your mortgage is not an easy process. It’s not a magic process that guarantees you will qualify to purchase a new property using the mortgage you had on a previous property. In addition to re-qualifying for the mortgage you already have, the lender will also assess the property you’re looking to purchase. Many moving parts come into play. You’re more likely to have significant setbacks throughout the process than you are to execute a flawless port. Here are some of the reasons: You may not qualify for the mortgage Let’s say you’re moving to a new city to take a new job. If you’re relying on porting your mortgage to buy a new property, you’ll have to substantiate your new income. If you’re on probation or changed professions, there’s a chance the lender will decline your application. Porting a mortgage is a lot like qualifying for a new mortgage, just with more conditions. The property you are buying has to be approved So let’s say that your income isn’t an issue and that you qualify for the mortgage. The subject property you want to purchase has to be approved as well. Just because the lender accepted your last property as collateral for the mortgage doesn’t mean the lender will accept the new property. The lender will require an appraisal and scrutinize the condition of the property you’re looking to buy. Property values are rarely the same Chances are, if you’re selling a property and buying a new one, there’ll be some price difference. When looking to port a mortgage, if the new property’s value is higher than your previous property, requiring a higher mortgage amount, you’ll most likely have to take a blended rate on the new money, which could increase your payment. If the property value is considerably less, you might incur a penalty to reduce the total mortgage amount. You still need a downpayment Porting a mortgage isn’t just a simple case of swapping one property for another while keeping the same mortgage. You’re still required to come up with a downpayment on the new property. You’ll most likely have to pay a penalty Most lenders will charge the total discharge penalty when you sell your property and take it from the sale proceeds. The penalty is then refunded when you execute the port and purchase the new property. So if you are relying on the proceeds of sale to come up with your downpayment, you might have to make other arrangements. Timelines rarely work out When assessing the housing market, It’s usually a buyer’s market or a seller’s market, not both at the same time. So although you may be able to sell your property overnight, you might not be able to find a suitable property to buy. Alternatively, you may be able to find many suitable properties to purchase while your house sits on the market with no showings. And, chances are, when you end up selling your property and find a new property to buy, the closing dates rarely match up perfectly. Different lenders have different port periods Understanding that different lenders have different port periods is where the fine print in the mortgage documents comes into play. Did you know that depending on the lender, the time you have to port your mortgage can range from one day to six months? So if it’s one day, your lawyer will have to close both the sale of your property and the purchase of your new property on the same day, or the port won’t work. Or, with a more extended port period, you run the risk of selling your house with the intention of porting the mortgage, only to not be able to find a suitable property to buy. So while the idea of porting your mortgage can seem like a good idea, and it might even make sense if you have a low rate that you want to carry over to a property of similar value, it’s always a good idea to get professional mortgage advice and look at all your options. While porting your mortgage is a nice feature to have because it provides you with options, please understand that it is not a guarantee that you’ll be able to swap out properties and keep making the same payments. There’s a lot to know. If you’re looking to sell your existing property and buy a new one, please connect anytime. It would be a pleasure to walk you through the process and help you consider all your options, including a port if that makes the most sense!