What are you going to do with all that equity?

Joel Olson • January 20, 2022

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Valuations are in for 2022, but what can you do with it?

What are you gonna do with all that Equity from your recent home assessment? 


There is no question that more and more people have been asking us about the surprise on a huge gains on their personal assessment. 


First off, a lot of people misunderstand how these assessors are covered in the first place. 


That assessment is based on the “sight unseen” value of your home from July of the previous year. 


That means a system takes comparable sales in the area and determines the value based on July of last year in your marketplace. 


It doesn't take into consideration any recent repairs you may have done, or any updates you've done to the property since its last sold.


The most recent data normally an assessment has on hand is the MLS data from the last time the house sold, so for instance, if your house has had major upgrades since you've last sold it or you've owned it for quite a long time, it is assuming that it's in original condition and that depreciation has been taken into consideration on your Property Assessment. 


This makes the vast increase on your property assessments even more surprising, knowing that logically it means that assessments are much lower than what true values are. 


Nobody will question the fact that between July and December of last year, values went up in nearly every market across Canada. 


Now it, by no means, means that it is accurate… the system may have made errors. 


The system may have used data that was incorrect. 


It doesn't mean that your house is worth what is on the assessed value. 


In fact, it doesn't mean it's accurate at all. 


It certainly doesn't mean, as we hear from clients all the time, that your house has already went up 40% in value … and it doesn't mean your house automatically 30% of value is just a barometer of value based on a system last year. 


It also definitely means you shouldn't try to appeal it to get that a little bit higher so you can pay more taxes.


Anyway, what it does mean and what is an unquestionable truth these days is that houses across Canada, and for that matter,

North America, are up in value. 


And it means you have more equity in your house simply because houses have gone up in value vs a year ago… and by no other reason, whether you've done repairs, whether you've done anything to your house.


What you have to think about are just a few things. 


First of all, a lot of people may look at this market and go, “is now the time to sell?” 


“Maybe I should cash out and take that money.”


This could be a useful strategy, especially if you're thinking about downsizing or you're thinking about moving to a market that may be less expensive.


However, remember the market’s up everywhere. 


So, even though you will sell high you will also buy high, so many of the gains that you will have achieved, you'll also see that when buying and so you'll more or less transfer your equity.


It doesn't mean it's a bad idea, but that it’s a worthy consideration. 


In fact, this is the same logic that I would say to somebody that's selling a home feeling the market is depressed. 


They're selling low but they're buying low as well. 


Now, the worthy conversation is whether or not the equity in your home needs to be put to work. 


We put up blogs and videos on this all the time. 


But now is the time to review your equity options. 


If you haven't already, even if you look at doing a refinance or did a refinance in spring or summer of last year, it may be time to relook at that again. 


The first thing you ought to look at is if now is the time to do renovations. 


If you are up for major renovations such as your roof, such as your siding, or things that are big ticket items, now's the time to get that cash at a very very low cost to you. 


Down the road, it might be more difficult to finance those repairs that you inevitably have to do. 


Of course, now it's also time to think we're updating that flooring, that painting, that floor plan, all that type of thing in your home.

 
But you can look at more unconventional ideas as well: Is now the time to add an addition? 


Is now the time to add an extra suite? 


All of those things will achieve extra income in your house that could more than pay for the nominal $50 $100 extra you're paying on your mortgage payment. 


If we move off of renos, now's the time to look at any high interest debt that you might be carrying. 


Maybe it's credit cards, maybe it's car loans, maybe it's student loans…


Now's the time to roll those into the mortgage at a lower rate. 


Now you'll hear people say that this can be a problem in doing so. 


As you don't really pay off the debt, you just move it. 


Now a more higher level strategy on something like this is to say I'm going to continue to pay the same amount of money but have that money applied to my mortgage. 


So I'm paying it off at a much more aggressive rate, meaning I'm going to pay it off faster and cheaper, paying less interest over time.


After that, you ought to look at the fact that there could be some opportunity to leverage your equity for other investments. 


Certainly business investment can make sense. 


Certainly there could be some investment you could be making in all types of things. 


These ideas, with the help of a good qualified professional, may make sense for you. 


But in particular, now may be the time to look at other real estate investments. 


Maybe you're thinking about buying a piece of land.


You could maybe buy that piece of land with cash from taking the equity out of your home. 


Maybe you're thinking about buying that second home, which might be a condo for kids to live in during the time they go to college. 


Or maybe it's a home that your elderly parents will live in for a while. 


Or maybe it's a second home you're going to be using for a recreational basis. 


Maybe that's a beach home or maybe that's a ski home. 


All of these things are options that you could utilize the equity without tapping into your hard earned savings or other investments you might have that could cause you very dearly when it comes to taxes. 


It's a good idea for you to get a hold of us so we can review all your equity options and make sure that you are doing things that may make a lot of sense in order to achieve your wealth goals in the next coming year. 


Don't wait until you've missed out on further market gains. 


Let's make sure we go through some options today and see what makes sense for you. 


Now of course, you may also decide that now's the time to take advantage of low interest rates and aggressively pay off your mortgage to be mortgage free faster. 


That of course is an option too, but again this is why it makes sense to schedule a time so we can go through some great options and see what works best for you.


Schedule your call today!

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An Overview of the Home Buying Process

By Joel Olson • June 3, 2025
If you’re in the early stages of planning to buy either your first home or your next home, you’ve come to the right place! Even if you’ve been through it before, the home buying process can be daunting, but it doesn’t have to be when you have the right people on your side! The purpose of this article is to share a high-level view of the home buying process. Obviously, the finer details can be addressed once you’ve submitted an application for pre-approval. But for now, here are some of the answers to general questions you may have as you work through your early preparations. Are you credit-worthy? Having an established credit profile is essential when applying for a mortgage. For your credit to be considered established, you’ll want to have a minimum of two trade lines (credit cards, loans, or lines of credit) with a minimum limit of $2500, reporting for a period of at least two years. From there, you’ll want to make sure that your debt repayment is as close to flawless as possible. Think of it this way: Why would a lender want to lend you money if you don’t have a history of timely repayment on the loans you already have? Making your payments on time, as agreed, is crucial. We all know, however, that mistakes can happen and payments might get missed. If that's the case, it’s best to catch up as quickly as possible! Late payments only register on your credit report if you're past due by 30 days. How will you make your mortgage payments? When providing you with a mortgage, lenders are trusting you with a lot of money. They'll want to feel really good about your ability to pay that money back, over an agreed period of time, with interest. The more stable your employment, the better chances you have of securing mortgage financing. Typically, you’ll want to be employed in a permanent position or have your income averaged over a period of two years. If you’re self-employed, expect to provide a lot more documentation to substantiate your income. How much skin do you have in the game? If you're borrowing money to buy a home, you’re going to have to bring some money to the table. The best down payment comes from accumulating your own funds supported by documents proving a 90-day history in your bank account. Other down payment sources, such as a gift from a family member or proceeds from another property sale, are completely acceptable. In Canada, 5% down is the minimum requirement. However, depending on the purchase price, it might be more. Also, you need to be aware that you will likely have to prove access to at least 1.5% of the purchase price to be allocated for closing costs. How much can you afford? Here’s the thing. What you can afford on paper and what you can afford in real life are often very different amounts. Just because you feel you can afford the proposed mortgage payments, know that you will have to substantiate everything through documentation. The amount you actually qualify to borrow is based on many factors, certainly too many to list in an article designed to provide you with an overview of the home buying process. However, with that said, it’s never too early in the home buying process to seek professional advice. Our services come at no cost to you; it would be our pleasure to help. Working with an independent mortgage professional will allow you to assess your credit-worthiness, provide insight on how a lender will view your income, help you plan for a down payment, and nail down exactly how much you can afford to borrow. And if you need help putting together a plan to improve your financial situation, we can do that too. If you’d like to discuss your financial situation and put together a plan to secure mortgage financing, please get in touch!

GDS/TDS Ratios Explained

By Joel Olson • May 20, 2025
One of the major qualifiers lenders look at when considering your application for mortgage financing is your debt service ratios. Now, before we get started, if you prefer to have someone walk through these calculations with you, assess your financial situation, and let you know exactly where you stand, let’s connect. There is no use in dusting off the calculator and running the numbers yourself when we can do it for you! However, if you’re someone who likes to know the nitty-gritty of how things work instead of simply accepting that's just the way it is, this article is for you. But be warned, there are a lot of mortgage words and some math ahead; with that out of the way, let’s get started! “Debt servicing” is the measure of your ability to meet all of your financial obligations. There are two ratios that lenders examine to determine whether you can debt service a mortgage. The first is called the “gross debt service” ratio, or GDS, which is the percentage of your monthly household income that covers your housing costs. The second is called the “total debt service” ratio, or TDS, which is the percentage of your monthly household income covering your housing costs and all your other debts. GDS is your income compared to the cost of financing the mortgage, including your proposed mortgage payments (principal and interest), property taxes, and heat (PITH), plus a percentage of your condo fees (if applicable). Here’s how to calculate your GDS. Principal + Interest + Taxes + Heat / Gross Annual Income Your TDS is your income compared to your GDS plus the payments made to service any existing debts. Debts include car loans, line of credit, credit card payments, support payments, student loans, and anywhere else you’re contractually obligated to make payments. Here’s how to calculate your TDS. Principal + Interest + Taxes + Heat + Other Debts / Gross Annual Income With the calculations for those ratios in place, the next step is to understand that each lender has guidelines that outline a maximum GDS/TDS. Exceeding these guidelines will result in your mortgage application being declined, so the lower your GDS/TDS, the better. If you don’t have any outstanding debts, your GDS and TDS will be the same number. This is a good thing! The maximum ratios vary for conventional mortgage financing based on the lender and mortgage product being offered. However, if your mortgage is high ratio and mortgage default insurance is required, the maximum GDS is 39% with a maximum TDS of 44%. So how does this play out in real life? Well, let’s say you’re currently looking to purchase a property with a payment of $1700/mth (PITH), and your total annual household income is $90,000 ($7500/mth). The calculations would be $1700 divided by $7500, which equals 0.227, giving you a gross debt service ratio of 22.7%. A point of clarity here. When calculating the principal and interest portion of the payment, the Government of Canada has instituted a stress test. It requires you to qualify using the government's qualifying rate (which is higher), not the actual contract rate. This is true for both fixed and variable rate mortgages. Now let’s continue with the scenario. Let’s say that in addition to the payments required to service the property, you have a car payment of $300/mth, child support payments of $500/mth, and between your credit cards and line of credit, you’re responsible for another $700/mth. In total, you pay $1500/mth. So when you add in the $1700/mth PITH, you arrive at a total of $3200/mth for all of your financial obligations. $3200 divided by $7500 equals 0.427, giving you a total debt service ratio of 42.7%. Here’s where it gets interesting. Based on your GDS alone, you can easily afford the property. But when you factor in all your other expenses, the TDS exceeds the allowable limit of 42% (for an insured mortgage anyway). So why does this matter? Well, as it stands, you wouldn’t qualify for the mortgage, even though you are likely paying more than $1700/mth in rent. So then, to qualify, it might be as simple as shuffling some of your debt to lower payments. Or maybe you have 10% of the purchase price saved for a downpayment, changing the mortgage structure to 5% down and using the additional 5% to pay out a portion of your debt might be the difference you need to bring it all together. Here’s the thing, as your actual financial situation is most likely different than the one above, working with an independent mortgage professional is the best way to give yourself options. Don’t do this alone. Your best plan is to seek and rely on the advice provided by an experienced independent mortgage professional. While you might secure a handful of mortgages over your lifetime, we do this every day with people just like you. It’s never too early to start the conversation about mortgage qualification. Going over your application and assessing your debt service ratios in detail beforehand gives you the time needed to make the financial moves necessary to put yourself in the best financial position. So if you find yourself questioning what you can afford or if you want to discuss your GDS/TDS ratios to understand the mortgage process a little better, please get in touch. It would be a pleasure to work with you, we can get a preapproval started right away.