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Tag: mortgage

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  • What Is a Mortgage Note in Real Estate and How Does It Work?

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    Key takeaways

    • A mortgage note is your signed promise to repay your home loan.
    • It outlines the loan amount, interest rate, repayment schedule, and default terms.
    • It’s different from a mortgage or deed of trust, which secures the loan with your property.
    • Lenders can sell your mortgage note, but your terms won’t change.

    When you buy a home and take out a mortgage, you sign a lot of paperwork. One of the most important documents is the mortgage note. Sometimes called a promissory note, this legally binding contract lays out the details of your loan and your promise to repay it. Whether you’re browsing homes for sale in Austin, TX or considering buying a house in Seattle, WA, understanding how a mortgage note works is essential.

    In this Redfin article, we’ll break down what a mortgage note is, what’s included, how it works, and why it matters.

    What is a mortgage note?

    A mortgage note is the written agreement between you (the borrower) and your lender that specifies:

    • The amount you borrowed
    • The interest rate
    • The repayment schedule (monthly payments, term length, due dates)
    • What happens if you miss payments or default

    Think of it as the “IOU” of your home loan. Unlike your mortgage or deed of trust, which secures the loan against your property, the mortgage note itself is your personal promise to repay.

    What’s included in a mortgage note

    While the exact format may vary by lender and state, most mortgage notes include:

    • Loan amount (principal): The total you borrowed.
    • Interest rate: Fixed or adjustable.
    • Payment terms: Monthly payment amount, due date, and loan term (e.g., 15 or 30 years).
    • Late fees and default penalties: How much you’ll pay if you miss deadlines.
    • Acceleration clause: Gives the lender the right to demand the full balance if you default.
    • Prepayment terms: Whether you can pay off your mortgage early without penalty.
    • Signatures: Both you and the lender (or their authorized representative) must sign for it to be enforceable.

    Types of mortgage notes

    Not all mortgage notes are the same. The type you sign depends on your loan structure and agreement with your lender. Common types include:

    • Fixed-rate mortgage note: Outlines a loan with an interest rate that stays the same for the entire term, making monthly payments predictable.
    • Adjustable-rate mortgage (ARM) note: Includes terms where the interest rate can change after an initial fixed period, based on market conditions.
    • Balloon mortgage note: Requires smaller monthly payments at first but ends with a large lump-sum “balloon” payment at the end of the term. More common in commercial or short-term lending.
    • Interest-only mortgage note: Lets borrowers pay only the interest for a set period before switching to full principal and interest payments.
    • Convertible mortgage note: Allows an adjustable-rate loan to convert into a fixed-rate loan under certain conditions.

    Mortgage note vs. mortgage (or deed of trust)

    Borrowers often confuse the mortgage note with the mortgage itself. Here’s the difference:

    Document What It Does
    Mortgage note Your promise to repay the loan. Outlines terms and conditions.
    Mortgage/deed of trust  (security instrument) The legal document that secures the loan with your home as collateral. It gives the lender rights to foreclose if you don’t pay.

    >>>Read: What is a Mortgage?

    Mortgage note vs. promissory note

    The terms “mortgage note” and “promissory note” are often used interchangeably, but there’s a subtle difference:

    • Promissory note: A broad legal document in which a borrower promises to repay a debt. It can apply to many types of loans, not just mortgages.
    • Mortgage note: A specific type of promissory note tied to a home loan. It includes detailed terms like the loan amount, interest rate, repayment schedule, and consequences of default.

    In short, all mortgage notes are promissory notes, but not all promissory notes are mortgage notes. The “mortgage” part means your home secures the debt, giving the lender the right to foreclose if you don’t pay.

    Why a mortgage note matters

    The mortgage note is critical for several reasons:

    • Proof of debt: It’s the official record that you owe money.
    • Borrower protection: It clearly states your rights and obligations, preventing disputes.
    • Investor use: Lenders can sell mortgage notes on the secondary market (to investors, Fannie Mae, Freddie Mac, etc.). Your loan servicing may change, but your terms stay the same.
    • Legal enforcement: If you stop making payments, the lender uses the note in court to prove default.

    How can I get a copy of my mortgage note?

    If you need a copy of your mortgage note, you have a few options:

    • From your lender or loan servicer: Contact the company that manages your mortgage payments. They’re required to provide you with a copy upon request.
    • Closing documents: You should have received a copy of the mortgage note when you closed on your home. Check your closing packet or digital records from your title company.
    • County recorder’s office: In some states, a version of the note may be recorded with your local county clerk or recorder of deeds. You can request a copy from them, though not all notes are public record.
    • Online servicing portal: Many loan servicers let you download important loan documents directly from your online account.

    Tip: If you’re planning to refinance, sell your home, or simply want to confirm your loan terms, having your mortgage note on hand can make the process smoother.

    Can you sell or buy mortgage notes?

    Yes – but typically only lenders and investors do.Mortgage notes are bought and sold as financial assets. For example:

    • Performing notes: Borrowers are making payments on time—these are lower risk.
    • Non-performing notes: Borrowers are behind on payments—these carry higher risk and are sold at a discount.

    What happens if you lose your mortgage note?

    If your original mortgage note gets lost, lenders can often rely on digital copies, county records, or sworn statements to enforce the loan. Borrowers don’t usually need to keep the original, but having your copy is wise for reference.

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  • Can You Get a Mortgage With No Credit History?

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    When buying a home, lenders almost always check your credit history to assess how likely you are to repay the loan. But what if you don’t have a credit history at all? Maybe you’ve never used credit cards, taken out a loan, or your credit profile is too thin to generate a score. If you’re asking, “Can you get a mortgage with no credit history?” the answer is yes—though it’s more challenging, and you’ll need to show lenders your financial responsibility in other ways.

    Whether you’re browsing homes for sale in Los Angeles, CA or planning to buy in Chicago, IL, Redfin explains your options, what lenders look for, and the steps you can take to qualify.

    Why credit history matters to lenders

    Credit reports and scores give lenders a quick snapshot of how you’ve managed debt. Without this data, lenders don’t have a standard way to measure risk. That doesn’t mean you’re automatically disqualified, but you’ll need to prove you’re financially reliable through alternative documentation.

    >>>Read: What Credit Score is Needed to Buy a House?

    No credit vs. bad credit

    Many people assume that having no credit history is the same as having bad credit, but lenders view them differently.

    • No credit: You don’t have enough credit history to generate a score. This typically happens if you’ve never used credit cards, loans, or other forms of debt reporting to the credit bureaus. This isn’t automatically negative, but some lenders may still see it as a risk because they have no repayment track record to review.
    • Bad credit: You do have a credit score, but it reflects missed payments, defaults, high debt levels, or other financial issues. Unlike no credit, bad credit shows a track record of risk, which makes it harder to qualify for a mortgage or secure favorable terms.

    Key takeaway: With no credit, you may still qualify for FHA, VA, or USDA loans if you can show a solid payment history through alternative documentation. With bad credit, you’ll likely need time to improve your score before you can be approved.

    Options for getting a mortgage with no credit history

    1. FHA loans

    The Federal Housing Administration (FHA) offers programs designed for borrowers with limited or no credit history. Lenders can use non-traditional credit references, such as rental history, utility bills, insurance payments, or cell phone bills, to establish a pattern of on-time payments.

    2. VA loans

    If you’re an eligible veteran or active-duty service member, a VA loan can be a strong option. VA guidelines are more flexible, and lenders can rely on alternative credit data in place of a traditional credit score.

    3. USDA loans

    For buyers in rural and suburban areas, USDA loans may also allow manual underwriting when a credit history is missing. Again, consistent payment history from non-traditional accounts can help.

    >>>Read: How to Find and Buy a USDA-Eligible Home

    4. Manual underwriting

    Some lenders will manually review your financial situation instead of relying solely on automated systems. They’ll look at:

    • Rent payment history
    • Utility bills
    • Insurance premiums
    • Bank statements showing consistent savings habits

    Manual underwriting takes longer, but it allows you to demonstrate reliability without a credit score.

    >>>Read: Types of Home Loans

    What lenders want to see instead of credit

    Without a score, lenders may request extra documentation, such as:

    • Proof of consistent rent payments (12 months of checks or statements)
    • Utility or service payment records
    • Stable employment and income verification
    • Lower debt-to-income ratio (DTI)
    • Larger down payment (sometimes 10–20% or more)

    Tips to improve your chances of approval 

    • Save for a larger down payment: Reduces lender risk and makes approval more likely.
    • Show steady employment: The longer you’ve been with an employer, the better.
    • Maintain strong savings: Bank statements that show you have emergency funds help build confidence.
    • Consider a co-signer: Someone with established credit can strengthen your application.
    • Start building credit now: Even a secured credit card or small loan reported to credit bureaus can help you establish a track record before applying.

    Should you build credit before buying?

    If you’re not in a rush to buy, building a credit profile can make the process smoother and may unlock better interest rates. Even six months to a year of responsible credit use can improve your options significantly.

    >>>Read: How to Improve Your Credit Score Before Buying a Home

    Frequently asked questions about getting a mortgage with no credit history

    1. Can I get a mortgage if I have no credit score?

    Yes. Some lenders use manual underwriting or accept alternative credit data like rental history, utility payments, and bank statements to approve borrowers with no credit score.

    2. What loans are available for buyers with no credit history?

    FHA, VA, and USDA loans are the most common programs that allow applicants with no credit history. These loans often accept non-traditional credit references instead of a credit score.

    3. Will I need a larger down payment if I have no credit history?

    Sometimes. A bigger down payment (10–20% or more) can help offset a lender’s risk and make approval more likely. For FHA loans, the minimum down payment is still 3.5% – but offering more can strengthen your application, especially if you have limited credit history.

    4. Can I use rent payments as proof of credit history?

    Absolutely. Documented, on-time rent payments are one of the strongest forms of alternative credit that lenders consider during manual underwriting.

    5. Should I build credit before applying for a mortgage?

    If you’re not in a rush to buy, building credit first can help you qualify more easily and secure a lower interest rate. Even six to 12 months of responsible credit use can make a difference.

    6. Is it easier to rent an apartment with no credit than to buy a home?

    Yes. Renting an apartment usually has lower requirements, but landlords may still ask for proof of income, a higher deposit, or a co-signer if you don’t have credit.

    The bottom line on getting a mortgage with no credit

    You can get a mortgage with no credit history, but it requires extra effort and the right loan program. FHA, VA, and USDA loans offer flexible pathways, and manual underwriting gives lenders alternative ways to evaluate your financial responsibility. By preparing documentation, saving for a strong down payment, and showing stability in income and expenses, you can still achieve homeownership, even without a traditional credit score.

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  • How Often Does an Underwriter Deny a Loan?

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    Applying for a mortgage is one of the biggest financial steps you’ll ever take – and while many applications are approved, not every loan makes it through underwriting. Naturally, that raises the question: How often does an underwriter deny a loan?

    On average, about 1 in 10 mortgage applications are denied. That means the majority are approved, but there are still a number of reasons why an underwriter might say no. 

    Understanding how underwriting works, why denials happen, and what you can do to avoid them will put you in a stronger position when you apply for a mortgage.

    What is underwriting?

    Mortgage underwriting is a key step in the homebuying process where your lender evaluates your financial health to determine your ability to repay the loan.

    They typically review:

    • Credit: Your borrowing and repayment history, current debts, and credit score. Conventional loans usually require a score of 620 or higher, though other loan types may have different requirements.
    • Income: Documentation of your earnings, such as W-2s, pay stubs, and bank statements. Self-employed borrowers may need to provide tax returns or other proof of income.
    • Assets: This refers to the type of funds you have access to. This includes investments, retirement funds, cash in savings and checking accounts, and more.

    Your lender will order an appraisal to confirm the home is worth the sale price. A licensed appraiser reviews the property’s condition, upgrades, and recent comparable sales to determine its fair market value.

    So, how often does an underwriter deny a loan?

    In 2023, about 9.4% of all home purchase applications were denied, according to data from the Consumer Financial Protection Bureau. That means just under 1 in 10 mortgage applications didn’t make it past underwriting.

    Denial rates vary by loan type, though. FHA loans had a higher denial rate at 13.6%, while conventional conforming loans had the lowest at 7.9%, showing some variation depending on the program you choose. Refinance applications tend to have higher denials, with an overall rate of 32.7% in 2023.

    So while most buyers are approved, underwriters consider factors like loan type, credit score, debt-to-income ratio, and down payment size. 

    6 reasons your mortgage loan may be denied in underwriting

    Why would an underwriter deny a loan? A prospective homebuyer’s loan might be denied during the underwriting process for various reasons, including:

    1. Low credit score

    Your credit score is one of the most important factors in mortgage underwriting. It reflects your history of borrowing and repaying money, including credit cards, student loans, auto loans, and previous mortgages. Scores range from 300 to 850, with higher scores indicating lower risk.

    Recent changes in credit behavior can also affect approval. For instance, suddenly maxing out a credit card or applying for multiple loans may raise red flags during underwriting.

    2. High debt-to-income ratio

    A high debt-to-income ratio (DTI) can reduce your chances of mortgage approval. Each loan program sets its own DTI limits. To calculate it, divide your total monthly debt payments by your monthly income and multiply by 100. A higher percentage means more of your income goes toward debt, which can make lenders hesitant.

    3. Financial issues

    Underwriters may deny a mortgage if they identify financial concerns beyond credit score or debt-to-income ratio. This can include unusual or unexplained bank account activity, such as large withdrawals or deposits that aren’t documented, which may raise questions about your financial stability.

    Past payment history also plays a critical role. Repeated missed mortgage payments, late rent, or other delinquencies can signal risk to lenders. Additionally, outstanding collections, liens, or recent bankruptcies can further jeopardize approval. Essentially, any financial behavior that suggests you may struggle to make consistent mortgage payments can lead an underwriter to deny your application.

    4. Employment change

    Lenders want to see steady income when approving a mortgage. Frequent job changes or gaps in employment can raise concerns about your ability to make consistent monthly payments. Most lenders require proof of at least two years of employment history to demonstrate financial stability.

    5. Low appraisal

    A low appraisal can affect a loan approval and cause it to be denied during the underwriting process because a lender cannot lend more to a borrower than the loan program allows. For example, the appraisal comes back a lot lower than the sales price of the home, the buyer would have to pay the difference or renegotiate to a lower price.

    6. Problems with a property

    Issues with the property can increase the likelihood of a loan being denied. Major problems uncovered during a home inspection, such as foundation damage or structural concerns, can raise red flags for lenders. Getting an inspection early can help identify potential issues before they affect your mortgage approval.

    Should you be worried about underwriting?

    If you’re wondering if you should be worried about underwriting, the short answer is no, as long as you meet the requirements for your loan type.

    Let’s look at different types of home loans and their basic qualifications:

    • Conventional loans: Conventional loans generally require a minimum credit score of 620 and a debt-to-income ratio no larger than 50%. They’ll also consider your financial and physical assets to get a conventional loan.
    • Jumbo loans: Designed for homes above conforming loan limits ($806,500 in 2025, or $1,209,750 in Alaska and Hawaii). Lenders typically require at least a 680 credit score and a down payment of up to 20%.

    On the other hand, government-insured loans have different minimum requirements:

    • FHA loans: Backed by the Federal Housing Administration, these allow approval with credit scores as low as 500. With a 580+ score, you can qualify for a 3.5% down payment.
    • USDA loans: Backed by the U.S. Department of Agriculture, these are limited to designated rural areas. You’ll need a 640+ credit score with most lenders and income under 115% of the area median.
    • VA loans: Available to service members, veterans, and surviving spouses through the Department of Veterans Affairs. Many lenders accept scores as low as 580, allow higher DTI ratios, and require no down payment.

    What to do if an underwriter denies your loan

    Getting denied in underwriting doesn’t mean homeownership is out of reach. It just means you may need to make some adjustments. Here are a few steps to take:

    • Improve your credit score: Check your credit report for errors, pay down existing debt, and reduce high balances to show stronger financial health.
    • Increase down payment: Putting more money down lowers your loan-to-value ratio, reduces monthly payments, and makes you a safer bet for lenders.
    • Consider a co-signer: A co-signer with stronger credit can help you qualify, but both parties share responsibility if payments are missed.
    • Reevaluate your home search: Consider a less expensive property that better fits your finances, and work with a real estate agent to guide your search.

    FAQs

    Can you get approved after being denied in underwriting?

    Yes – if you address the issues that led to the denial, such as improving credit or reducing debt, you may qualify with the same or a different lender.

    Does a loan denial hurt your credit score?

    The denial itself doesn’t affect your credit score, but the hard inquiry from applying for the loan may cause a small, temporary dip.

    How long should you wait after being denied to apply again?

    You can apply again right away, but it’s often best to take a few months to improve your financial profile first.

    What are the chances of getting denied after pre-approval?

    Even after pre-approval, there’s still a chance your loan could be denied in underwriting. Pre-approval is based on preliminary information, but underwriting reviews your credit, income, assets, debts, and the property itself. Changes like new debt, missed payments, job changes, or a low appraisal can affect approval. While most pre-approved buyers move forward successfully, roughly 1 in 10 applications are denied during underwriting, so it’s important to keep your finances stable until closing.

    How often are FHA loans denied in underwriting?

    FHA loans tend to have higher denial rates than conventional loans. In 2023, about 13.6% of FHA home purchase applications were denied during underwriting. Denials can result from low credit scores, high debt-to-income ratios, or other financial issues, so maintaining stable finances and meeting program requirements can improve your chances of approval.

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  • ‘I’m not going anywhere’: For one Altadena fire survivor, the math makes sense to rebuild

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    Jennie Marie Mahalick Petrini has a big decision on her hands.

    For Petrini, the night of Jan. 7 brought total loss. The Eaton fire decimated her quaint home in the northwest corner of Altadena near Jane’s Village, reducing her sanctuary to a pile of rubble.

    “I have a spiritual connection to that house,” she said. “It was the only place I felt safe.”

    Now, like thousands of others, she’s crunching the numbers on whether to sell her burned lot and move on, or stay and rebuild.

    For many, it makes more sense to sell. Experts estimate a rebuild could take years, and navigating contractors, inspectors and governmental red tape, all while recovering from a traumatic incident, just isn’t worth the effort. It’s the reason why lots are hitting the market daily.

    But for Petrini — for reasons both emotional and financial, a melding of head and heart — staying is the only realistic option.

    Breaking down the math

    Petrini, 47, bought her Altadena home, where she lived with her partner and two daughters, for $705,000 in 2019. Built in 1925, it’s 1,352 square feet with three bedrooms and two bathrooms on a thin lot of just over 5,300 square feet.

    She was able to refinance her loan during the pandemic, lowering the interest rate to 2.75% on a $450,000 mortgage. The move brought her mortgage payments from $3,600 down to $3,000 — a relative steal, and only slightly more than the $2,800 rent she has been paying for a Tujunga apartment since the fire.

    The property was insured by Farmers, which sprang into action following the fire, sending the first of her payouts on Jan. 8.

    Petrini received $380,000 for the dwelling, an extra 20% for extended damage equating to roughly $70,000, and $200,000 for personal property. She used the $200,000 payout to cover living expenses such as a second car, medical bills and a bit of savings, and also tucked away $50,000 to use toward rebuilding.

    She estimates that even the thriftiest rebuild will cost around $700,000, and right now, she can cover around $500,000: the $380,000 and $70,000 insurance payouts, plus $50,000 of the personal property payout she stashed for a rebuild.

    To cover the extra $200,000, she received a Small Business Administration loan up to $500,000 with an interest rate of 2.65%, which can be used for property renovations. Once she starts pulling from that loan, she estimates she’ll pay around $1,000 per month, which, combined with her $3,000 mortgage, totals roughly $4,000.

    It’s a hefty number, but still far cheaper than selling and starting over.

    “I could sell the lot for $500,000, take my insurance payout and buy something new, but my house was valued at $1.2 million,” she said. “So even if I put $500,000 down on a new house, to get something similar, I’d have a $700,000 mortgage with a much higher interest rate.”

    As it stands, if she cashed out, she’d be renting for the foreseeable future in the midst of a housing crisis where rents rise and some landlords take advantage of tenants, especially in times of crisis. Price gouging skyrocketed as thousands flooded the rental market in January, leading to bidding wars for subaverage homes. To secure her Tujunga rental, Petrini, through her insurance, had to pay 18 months of rent up front — a total of more than $50,000.

    “It sounds so lucrative: sell the land, pay off my mortgage and be debt-free. But then my children wouldn’t have a home,” she said.

    Bigger than money

    Jennie Marie Mahalick Petrini, from left, and her daughters, Marli Petrini, 19, and Camille Petrini, 12, look over the lot where their home stood before the Altadena fire. It was the first time the daughters had looked through the lot.

    (Robert Hanashiro / For The Times)

    While the math makes sense, Petrini has bigger reasons for staying: she’s emotionally tied to the lot, the community and the people within it.

    Altadena is a safe haven for her. She bought her home after escaping a domestic violence situation in 2017. The seller had higher offers, but ended up selling to Petrini after she wrote a letter explaining her circumstances.

    It’s also the place where she got sober after abusing stimulants to stay awake and keep things running as a single mom.

    “When I was getting sober, I’d go for walks five times a day through the neighborhood,” she said. The trees, the animals, the flowers, the variety of houses. It was — is — a special place.”

    Petrini once worked as the executive director of operations at Occidental College, but took a break in 2023 to focus on her children and her health. She and a daughter both have Type 1 diabetes.

    Petrini hasn’t been employed since, and her parents helped her pay the mortgage before the fire. She acknowledges that she’s operating from a place of privilege, but said accepting help is crucial when recovering from something.

    “Even being unemployed, I just knew I’d be okay here,” she said. “I would trade potting soil to a man who owned a vegan restaurant in exchange for food. You always get what you need here.”

    Getting crafty

    For Petrini, speed is the name of the game. Experts estimate rebuilding could take somewhere between three and five years or even longer, but she’s hoping to break ground in August and finish by next summer.

    In addition to nonprofits, she’s also reaching out to appliances manufacturers and construction companies. The goal is to stitch together a house with whatever’s cheap — or even better, free. She recently received 2,500 square feet of siding from Modern Mill.

    “I’m not looking for a custom-built mansion, but I also don’t want an IKEA showroom box house,” she said. “My house was 100 years old, and I want to rebuild something with character.”

    To help with costs, she’s also hoping to use Senate Bill 9 to split her lot in half. She’d then sell the other half of the property to her contractor, a friend, for a friendly price of $250,000.

    Jennie Marie Mahalick Petrini is diving into the complicated process of staying in Altadena and rebuilding her property.

    Jennie Marie Mahalick Petrini is diving into the complicated process of staying in Altadena and rebuilding her property.

    (Robert Hanashiro / For The Times)

    To speed up the process, she’s opting for a “like-for-like” rebuild — structures that mirror whatever they’re replacing. For such projects, L.A. County is expediting permitting timelines to speed up fire recovery.

    So Petrini’s new house will be the exact same size as the old one: 1,352 square feet with three bedrooms and two bathrooms. She submitted plans in early June and expects to get approval by the end of the month.

    For the design, she turned to Altadena Collective, an organization collaborating with the Foothill Catalog Foundation that’s helping fire victims in Jane’s Village rebuild the English Cottage-style homes for which the neighborhood is known. For customized architectural plans, project management and structural engineering, Petrini paid them $33,000 — roughly half of what she would’ve paid someone else, she said.

    “I’m going with whatever’s quickest and most efficient. If we run out of money, who needs drywall,” she said. “I want my house to be the first one rebuilt.”

    It doesn’t have to be perfect. Petrini and her daughters have been compiling vision boards of their dream kitchen and bathrooms, but she knows sacrifices will be made.

    “It’s gonna be a scavenger hunt to get this done. We’re gonna use any material we can find,” she said. “But it’ll have a story. Just like Altadena.”

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  • The Canadian mortgage stress test, explained

    The Canadian mortgage stress test, explained

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    In 2018, the stress test was expanded to include buyers with more than a 20% down payment (those with uninsured mortgages). Since then, all Canadian home buyers applying through a federally regulated lender—as well as those refinancing their current mortgage—have been required to pass the test.

    Has the stress test changed over the years?

    Yes. The stress test has evolved in a couple of ways, including changes to the qualifying rate itself, and how the rate is applied.

    Until June 2021, the stress test rate was set at either 2% above the contract rate that buyers negotiated with their lender, or at the posted Bank of Canada (BoC) five-year rate, whichever was higher. However, when the BoC slashed rates at the onset of the COVID-19 pandemic, there were concerns that its five-year benchmark rate was too low to adequately protect borrowers from defaulting on their mortgages in the future.

    So, the Office of the Superintendent of Financial Institutions (OSFI), a federal government agency that acts as Canada’s banking watchdog, decided to decouple the minimum qualifying stress test rate from the central bank’s rates, and instead use a set floor rate that is reviewed annually.

    Another change has to do with mortgage renewals. Previously, if borrowers wanted to move their mortgage to a different federally regulated lender at renewal, they needed to “pass” the stress test again as a new applicant. In late 2023, however, the federal government eliminated that requirement on insured or high-ratio mortgages, as part of the Canadian Mortgage Charter. And as of Nov. 21, 2024, borrowers with uninsured mortgages will also be able to switch lenders at renewal and qualify based on market interest rates, rather than the stress tested rate.

    “This is a very good thing,” says Crawford. “Borrowers will be able to qualify at the contract rate, which means they can shop around at renewal instead of just accepting whatever their current lender is offering.”

    It’s important to note, however, that borrowers who are refinancing their mortgage—meaning, they want to change the terms of their mortgage contract, say, to extend the amortization period or to borrow extra money against the home’s equity—must pass the stress test again with either their current lender or a new one.

    What does the stress test mean for borrowers?

    The stress test reduces the size of mortgage that buyers can qualify for, says Crawford. So, unless you are able to come up with a bigger down payment to make up the difference, the test also lowers your maximum purchase price. 

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  • The Canadian mortgage stress test, explained

    The Canadian mortgage stress test, explained

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    “The stress test was introduced to add a margin of safety to ensure borrowers could make their payments if they faced a change in circumstances—such as if interest rates go up or their income changes,” says Crawford. 

    In 2018, the stress test was expanded to include buyers with more than a 20% down payment (those with uninsured mortgages). Since then, all Canadian home buyers applying through a federally regulated lender—as well as those refinancing their current mortgage—have been required to pass the test.

    Has the stress test changed over the years?

    Yes. The stress test has evolved in a couple of ways, including changes to the qualifying rate itself, and how the rate is applied.

    Until June 2021, the stress test rate was set at either 2% above the contract rate that buyers negotiated with their lender, or at the posted Bank of Canada (BoC) five-year rate, whichever was higher. However, when the BoC slashed rates at the onset of the COVID-19 pandemic, there were concerns that its five-year benchmark rate was too low to adequately protect borrowers from defaulting on their mortgages in the future.

    So, the Office of the Superintendent of Financial Institutions (OSFI), a federal government agency that acts as Canada’s banking watchdog, decided to decouple the minimum qualifying stress test rate from the central bank’s rates, and instead use a set floor rate that is reviewed annually.

    Another change has to do with mortgage renewals. Previously, if borrowers wanted to move their mortgage to a different federally regulated lender at renewal, they needed to “pass” the stress test again as a new applicant. In late 2023, however, the federal government eliminated that requirement on insured or high-ratio mortgages, as part of the Canadian Mortgage Charter. And as of Nov. 21, 2024, borrowers with uninsured mortgages will also be able to switch lenders at renewal and qualify based on market interest rates, rather than the stress tested rate.

    “This is a very good thing,” says Crawford. “Borrowers will be able to qualify at the contract rate, which means they can shop around at renewal instead of just accepting whatever their current lender is offering.”

    It’s important to note, however, that borrowers who are refinancing their mortgage—meaning, they want to change the terms of their mortgage contract, say, to extend the amortization period or to borrow extra money against the home’s equity—must pass the stress test again with either their current lender or a new one.

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    Tamar Satov

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  • Florida Realtors Relief Fund Offers $500K to Help Hurricane Victims

    Florida Realtors Relief Fund Offers $500K to Help Hurricane Victims

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    The Florida Realtors Relief Fund is offering $500,000 to help hurricane victims.

    The National Association of Realtors‘ Realtors Relief Foundation announced a $500,000 grant to Florida Realtors to help Floridians with housing issues resulting from Hurricanes Milton and Helene.

    “So many people are struggling from the devastation caused by Hurricanes Milton and Helene in communities across our state,” says 2024 Florida Realtors® President Gia Arvin, broker-owner with Matchmaker Realty in Gainesville. “The crucial first step is often dealing with housing needs. Thanks to the National Association of Realtors’ (NAR) Realtors Relief Foundation and their generous donation to help Florida residents in the wake of these hurricanes, people can find the housing assistance they need to rebuild their homes and their lives.”

    As a result, Florida Realtors is handling two charitable relief programs: its Disaster Relief Fund that focuses on housing challenges within the Realtor family after a natural disaster, and these grants through NAR’s Realtors Relief Foundation funding that offers money to any Floridian impacted by the storms and facing-housing related needs. Check online for more information or to apply for RFF assistance.

    Qualifications for NAR-funded assistance through the Realtors Relief Foundation:

    • Monthly mortgage expense for the primary residence that was damaged during Hurricane Helene and/or Hurricane Milton in September/October 2024; or
    • Rental cost due to displacement from the primary residence resulting from Hurricane Helene and/or Hurricane Milton in September/October 2024.
    • Submit only one application if you were impacted by Hurricane Milton and Hurricane Helene.
    • Maximum grant amount per household is $1,000.

    RRF applications for Hurricane Helene and Hurricane Milton close April 2, 2025. Recipients must be full-time Florida residents and citizens of the United States, or legally admitted for residence in the U.S.

    This assistance is for housing relief only; other expenses including second mortgages (home equity lines or loans), clothing, appliances, equipment, and vehicles (purchase, rental or repair and/or mileage) are ineligible for reimbursement under this program.

    Type of assistance offered to qualified applicants:

    • Monthly mortgage expense for the primary residence that was damaged during Hurricane Helene and/or Hurricane Milton in September/October 2024; or
    • Rental cost due to displacement from the primary residence resulting from Hurricane Helene and/or Hurricane Milton in September/October 2024. Relief assistance is limited to a maximum of $1,000 per household.

    All grants are contingent upon the availability of funds. As a result, aid will be provided on a first-come, first-serve basis.

    For more info, including how to apply and the applications for assistance, go to the Florida Realtors website.

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  • Why are mortgages so expensive in Canada? – MoneySense

    Why are mortgages so expensive in Canada? – MoneySense

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    A total of three rate cuts passed down from the Bank of Canada since June have cumulatively lowered the cost of borrowing for Canadians by 75 basis points, from 5% to 4.25%, offering home buyers some much-needed relief in terms of affordability.

    This is according to the latest affordability report compiled by Ratehub.ca, which crunches the minimum annual income required to buy an average home in some of Canada’s major cities. (Ratehub Inc. owns both Ratehub.ca and MoneySense.) The report is based on September 2024 and August 2024 real estate data reported by the Canadian Real Estate Association (CREA). It illustrates how changing mortgage rates, stress test rates and real estate prices are impacting the income needed to buy a home. 

    The September edition (updated monthly, so bookmark this page) shows the required income lowered in 11 of the 13 housing markets studied, as the average five-year fixed mortgage rate dropped to 5.04%, compared to 5.16% in August. As a result, the corresponding average mortgage stress test rate—which tacks on an additional 2% to a borrowers’ contract mortgage rate—fell to 7.04% from the previous 7.16%.

    Let’s take a look at how that’s impacted home buyers across Canada.

    The best places to buy real estate in Canada

    Housing affordability across Canada’s major cities

    Check out the chart below to see how affordability changed between August and September in Canada’s main housing markets, based on the income required to qualify for a mortgage.

    September 2024: How much do you need to earn to buy a home in Canada?

    City Average home price in August Average home price in September Change in home price  Income required in August Income required in September Change in income
    Vancouver $1,195,900 $1,179,700 -$16,200 $224,000 $219,000 -$5,000
    Toronto $1,082,200 $1,068,700 -$13,500 $204,100 $199,800 -$4,300
    Hamilton $840,300 $831,500 -$8,800 $161,800 $158,740 -$3,060
    Victoria $866,700 $864,400 -$2,300 $166,420 $164,450 -$1,970
    Halifax $543,700 $538,100 -$5,600 $109,940 $108,000 -$1,940
    Calgary $586,100 $582,100 -$4,000 $117,360 $115,600 -$1,760
    Ottawa $646,000 $642,800 -$3,200 $127,830 $126,100 -$1,730
    Edmonton $400,200 $399,400 -$800 $84,850 $83,990 -$860
    Winnipeg $361,800 $362,500 $700 $78,140 $77,600 -$540
    Fredericton $311,300 $312,000 $700 $69,310 $68,860 -$450
    Regina $319,700 $320,700 $1,000 $70,780 $70,360 -$420
    Montreal $535,700 $543,400 $7,700 $108,550 $108,900 $350
    St. John’s $354,600 $364,100 $9,500 $76,880 $77,880 $1,000
    Data in the chart is based on a mortgage with 20% down payment, 25-year amortization, $4,000 annual property taxes and $150 monthly heating. Mortgage rates are the average of the Big Five Banks’ 5-year fixed rates in September 2024 and August 2024. Average home prices are from the CREA MLS® Home Price Index (HPI).

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    Canadian cities where affordability improved

    Where in Canada is owning a home becoming more affordable?

    Vancouver: A chilly start to the autumn market

    Vancouver topped the list of cities with most-improved affordability, largely due to the fact that the average home price absorbed a $16,200 drop from August. Make no mistake,—this is still Canada’s most expensive housing market with an average property price tag of $1,179,700. But demand has been quite cool coming out of the summer months. According to the Greater Vancouver Realtors, sales fell 3.8% year-over-year in September, while the supply of new listings rose 12.8%, leading to an easy buyers’ market. As a result, Vancouver home buyers need to earn $5,000 less than they did last month to qualify for a mortgage on the average-priced home, at an income of $219,000.

    Toronto: A month of flat sales

    The city of Toronto came in second, as home prices continue to fall within Ontario’s largest city; the average property sold for $1,068,700, $13,500 less than it did in August, according to the Toronto Regional Real Estate Board. This is largely due to the fact that sales were unchanged from the previous month (though things are improving on an annual basis, coming in 8.6% higher than in 2023). Meanwhile, fresh supply continues to flood the market with new listings, which surged 35.5% year-over-year. Combined with easing mortgage rates, the average Toronto home buyer saw their required income shrink by $4,300, to $199,800.

    Hamilton: Hovering below the historical average

    Rounding out the top three cities is Hamilton, which has long been a popular Southern Ontario real estate destination, without the million-dollar price tag that characterizes neighbouring Toronto. The average home price in Hamilton in September came to $831,500, a decrease of $8,800 from August. The Association of Hamilton-Burlington reports that while sales were brisk in September, they continue to lag 2023 levels by 4% year-to-date and remain 28% below the long-term average. Meanwhile, new listings and inventory levels continue to rise, now sitting at a cumulative five months. That’s all cooled home prices, and as a result, Hamilton home buyers need to earn $158,740 to buy a home, $3,060 less than they did in August.

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    Penelope Graham

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  • Renewing your mortgage? A guide for Canadians – MoneySense

    Renewing your mortgage? A guide for Canadians – MoneySense

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    For those in that position, as well as those whose mortgages expire in the next 12 months, it’s best to go into the renewal process armed with knowledge of the kind of terms you’ll face and your options. Knowing in advance what you’re in for can take some of the sting out of “rate shock.” Depending on what your current lender and others have to offer, it may even make sense to renew before your old mortgage expires.

    Calculating your mortgage renewal

    Use the MoneySense Mortgage Renewal Calculator to get a sense of what you’ll be paying once you renew. This tool allows you to play around with variables, such as the location, amount borrowed, mortgage term, amortization and payment frequency to help find loan terms that work for you. If your current lender has already extended proposed terms for renewal, you can determine whether they are competitive or whether you should consider shopping around. You can even add in related expenses such as property taxes and utility fees to calculate your total costs of home ownership going forward.

    Should you change your mortgage terms and conditions?

    Worried that you’ll get saddled with what ends up looking like a pricey mortgage for the next five years? If you’re confident rates will continue to decline, you can reduce the length of your mortgage term to three years, two—as little as six months. (Conversely, you may conclude you don’t want to go through this often stressful process again that soon.) Read our coverage to learn the ins and outs of altering your mortgage term.

    Or you could consider switching to a variable- or floating-rate mortgage. That way you’ll always be paying a competitive rate of interest, whether it comes with fixed or variable payments. Be aware, though, that even fixed payments can end up rising if they hit a preset trigger rate. We’ve boiled down the arguments for fixed- versus variable-rate loans from some of Canada’s most knowledgeable mortgage minds.

    The best places to buy real estate in Canada

    How to cope with higher payments

    Regardless of the form your new mortgage takes, you will almost certainly be paying more than the one you signed up for in 2019 or 2020. We’ve compiled a list of strategies for managing the higher cost of borrowing (and to not lose your home), from making prepayments when possible to extending your amortization period. You can’t ignore the rest of your financial picture, either; you may have to cut back on discretionary spending, consolidate your other debts or dip into savings and investments to get your household cash flow on a sustainable trajectory.

    Compare the current rates in the table below. Just change the first variable to ”renewing,” and the others as they fit your situation.

    powered by

    What if you hit a wall?

    For some homeowners, a lender won’t offer to renew their mortgage at any price. In a higher rate environment or after a troubled mortgage term, your bank may simply decline your mortgage renewal application. Know that that is far from the end of the road. This article about what to do when your renewal is declined also explains how you can try to find a new, willing lender before resorting to the ultimate solution to mortgage-renewal trauma: selling your home.

    Read more on mortgage finance:



    About Michael McCullough


    About Michael McCullough

    Michael is a financial writer and editor in Duncan, B.C. He’s a former managing editor of Canadian Business and editorial director of Canada Wide Media. He also writes for The Globe and Mail and BCBusiness.

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    Michael McCullough

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  • I want to switch mortgage lenders—do I have to pass the stress test again? – MoneySense

    I want to switch mortgage lenders—do I have to pass the stress test again? – MoneySense

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    Speaking at Global Risk Institute summit on Wednesday, Routledge said he was worried that the requirement by lenders to run the “OSFI stress test” is making Canadians feel the regulator is too directly involved in their affairs.

    “If I were that person, I would feel regulated by OSFI. And that’s what we hear from Canadians. And I don’t think that was ever part of its intent.”

    The concern helped lead to OSFI’s announcement last week that starting Nov. 21, it would no longer require a stress test for uninsured mortgages when borrowers are making a straight switch between lenders, meaning they aren’t changing things like their amortization or borrowing amount.

    Only between 2% and 6% of borrowers make such a switch, so while it was something Routledge previously maintained was part of sound underwriting practices, the agency no longer saw it as worth the cost. 

    “It wasn’t a big enough prudential risk to justify that appearance of unfairness,” he said.

    You’re 2 minutes away from getting the best rates.

    Answer a few quick questions to get a personalized quote, whether you’re buying, renewing or refinancing.

    Why OSFI decided to change the stress test

    The removal of the stress test requirement comes as the regulator is also looking at a broader switch away from the B-20 stress test on individual borrowers, to a system that would regulate mortgage risk at a bank portfolio level.

    The regulator will next year be testing the alternative system, which sets limits on how much of a bank’s loan book can be taken up by borrowers with a high loan-to-income ratio. The regulator will then decide whether to add it to the current mortgage rules, or replace the existing stress test.

    While the new system would similarly limit concentration of risk, or even do a bit of a better job, it would also have the benefit of seeming to be less directly applied at the specific borrower level, said Routledge.

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    The Canadian Press

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  • Are Mortgage Rates Dropping?: Explaining What’s Happening to Interest Rates in 2024

    Are Mortgage Rates Dropping?: Explaining What’s Happening to Interest Rates in 2024

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    The short answer to the question “Are mortgage rates dropping?” is yes. On August 5th, daily average 30-year fixed mortgage rates dropped to 6.43% which is the lowest since April 2023. For home buyers, this poses a great opportunity to enter the market after over a year of record-high mortgage rates. 

    So if you’re beginning to look for homes for sale in Seattle, WA after renting an apartment or renting a house in the city or elsewhere in the U.S., now may be a good time to buy. Read on to learn more and make the decision for yourself.

     

    Are mortgage rates dropping right now?

    Today’s mortgage rates are influenced by investor expectations regarding the Federal Reserve’s actions. Investors believe the Fed has finished its efforts to control inflation and anticipate a gradual decrease in mortgage rates for the rest of the year. 

    Although the Fed is poised to cut interest rates in the next month, economists do not foresee a significant drop in mortgage rates beyond current levels, as today’s rates already account for the expected interest rate cuts projected for September.

    is-now-a-good-time-to-buy-a-house

    Why are mortgage rates so high?

    Mortgage rates in the U.S. are influenced by various factors, including inflation, Federal Reserve policies, and economic conditions. Currently, rates remain high due to persistent inflation and the Federal Reserve’s efforts to curb it through interest rate hikes. 

    While some experts predict that rates could stabilize or slightly decrease if inflation continues to cool, significant drops in mortgage rates are not expected in the immediate future. The Federal Reserve has signaled that it may maintain higher interest rates for an extended period to ensure inflation is controlled, which will likely keep mortgage rates elevated in the near term. However, potential economic slowdowns or shifts in Fed policy could eventually create conditions for lower rates, but this may take time.

    What will cause interest rates to drop?

    With skyrocketing prices over the past few years spurred on by low supply of homes and record-low mortgage rates, many home buyers are wondering what signs to look for when entering the market.

    The obvious answer is an announced decrease in interest rates, but there are other signs to look for, including declining home sales, a weakening job market, and cooling inflation. When inflation is high, the Federal Reserve will raise interest rates to combat it. Conversely, the decline of inflation will often result in the Fed easing up on rate hikes and reducing rates.    

    real-estate-agent-negotiation

    Should I lock in the mortgage rate today?

    Deciding whether to lock in today’s mortgage rate depends on several factors, including your financial situation, risk tolerance, and the current market outlook. If you are comfortable with the current rate and your budget can accommodate it, locking in now can provide certainty and protect you from potential future rate increases, especially since rates remain volatile and could rise further. 

    However, if you anticipate that rates might drop soon based on economic forecasts or if you’re willing to take on some risk, you could choose to float the rate instead. Consulting with a mortgage advisor who understands your specific needs can also provide personalized guidance tailored to your situation.

    At what point does it make sense to refinance?

    While rates are unlikely to drop enough in the near future to make refinancing a home loan worth it, it’s smart to know what to look out for if you’re worried you’ll miss out. To determine if it’s a good time to refinance your home loan, consider refinancing when current rates are significantly lower than your existing rate, typically by at least 0.5% to 1%, as this can lead to substantial savings. 

    Improving your credit score, increasing home equity, or switching from an adjustable-rate to a fixed-rate mortgage can also make refinancing appealing. Additionally, calculating your break-even point — when the savings outweigh the costs of refinancing — will help you decide if it’s worth it, especially if you plan to stay in your home long enough to benefit from the lower rate.

    Refinancing is something to be considered when wanting to lower costs.

    Final thoughts

    If you’re in a financial situation where you can purchase a home, now is the right time before competition catches up. Although interest rates may continue to drop, lower mortgage rates means more competition in the market which could result in higher prices.

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    Jeremy Steckler

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