4 Oct

Do You Have a Chocolate Covered Mortgage?

General

Posted by: Stephanie Blake

I have something shocking to tell you.  Ready? Canadian banks are a business like any other.  Gasp and shock!  This is nothing less than the truth.  They are mandated to produce profits and provide their shareholders with a dividend at the end of the year.  This is accomplished by charging us service fees and interest on loans and in a wide variety of other ways.  Given that the Canadian banking system is one of the strongest in the world which in turn benefits our economy as a whole, I certainly do not begrudge them their right to a profit.  So why am I drawing attention to this you may ask, well I will tell you.   

                  As a mortgage professional I am often told that people would rather stay with their bank because their bank has been so good to them or because the family has been with that particular bank for generations and I am genuinely baffled by the prevalence of this attitude.  Of course your bank is good to you!  You are a good person who pays your bills on time, has an account, or several, which generate a monthly service fee, and when you have borrowing needs you go to them and they lend you the funds at a reasonable rate.              When it comes to a mortgage though the loyalty you feel to your bank and the assumption that they will take care of your best interests can come with a high cost if you don’t understand the fine print.  Let’s look at some of the things you need to be aware of shall we?

  1. Best Rates – I see this so often.  Clients come in with their bank’s best offer which is considerably higher than the going market rate only to be told the bank is able to match after they spend a pile of time rate shopping.  Your mortgage rate determines your payment and affects your family’s budget.  Make sure you get the best rate you can.
  2. Prepayment Penalties – In Canada there is no set standard as to how the banks and other mortgage providers have to calculate the penalty if you break your mortgage.  A mortgage is a contract after all.  The banks have a right to expect a certain rate of return on the loan they have made to you but life happens and a major event can cause you to need to break your mortgage so make sure your penalty will be calculated reasonably.  I have seen this amount vary from $4200 to over $10,000 given the policy of the lender involved on the exact same mortgage amount and time remaining in the term.

Lenders are required to disclose the calculation to you but you need to be aware that some banks will calculate your penalty in a way that is most lucrative to them.

  1. Collateral Mortgages – Many of the banks now register your mortgage differently.  Say your mortgage is $250,000 but your home is worth $300,000.  In this instance the bank would register a charge on the title of the home for the higher amount.  The reason is so that if down the road you wish to get a home equity line of credit that you do not have to pay the legal fees again to do so.  That can be a useful tool.  The flip side is that this type of a mortgage is trickier to switch to a new lender at renewal.  You may not be able to take advantage of todays’ crazy low rates in a fee free switch if you have this type of a mortgage.

 

Placing your mortgage with your own bank does not all of a sudden turn it into a chocolate covered treat or make it any more prestigious.  It can actually be very costly in the long run to choose one lender over another without educating yourself on their policies. Make sure you are choosing the best overall mortgage so that you are ready for anything life hits you with.

2 Oct

Breaking up is Hard to Do!

General

Posted by: Stephanie Blake

Sharing a blog post written by a colleague….                                                        

So the reality of the world is that a large number of marriages end up in divorce.  This is a hard enough time in anyone’s life so the lenders and the mortgage insurers have come up with a product that can help.  It is the ability to refinance your matrimonial home up to 95% of its value to payout your ex their portion of the equity and perhaps even some of the debts you incurred together.  This is a specialty product and there are certain things you must do.  Let’s take a look shall we??

Step 1.  You must complete a legal separation agreement through a lawyer.  Even if it is the most amicable split in the history of mankind, this has to be done.  The reason for this is you want your rights protected fully.  If you are the one staying in the house, you want to make sure that your ex has legally and irrevocably given up their rights to the home.  If you are the one leaving, you want to make sure that your name is removed from the title so there is no question of you have any further obligation where it is concerned.   There will be a cost associated with the legal separation agreement. How much?  I would not dare to say but I would budget a bare minimum of $2500.  It is also important to keep in mind that legal matters often take more time than anticipated so don’t imagine you will be able to get this completed in a hurry.  Make sure that you address any debts taken on during the marriage.  These can be paid out from the proceeds of the new mortgage but only if they are listed.

 

Step 2.  Order an appraisal.  This has 2 reasons.  The first is that you and your ex will be able to determine the true value of the home through an impartial third party.  The second is that most lenders require it in this situation.

Step 3. Write up an offer to purchase.  This one always catches people off guard.  Why should you have to write up an offer to purchase on a property you already own?  The answer is just this.  The lenders require it.  This legally binding document shows the agreed upon price and the final closing date to which both parties have agreed. This can be completed through your lawyer, with the help of a willing Real estate professional or on your own with a form available online.

Step 4.  Get a mortgage.  You have likely been in contact with your mortgage professional before now but if not, then now is the time.  You are going to have to provide:

  • Separation Agreement
  • Appraisal
  • Offer to Purchase
  • Letter of employment and Paystub
  • Last 2 years Notice of Assessments or T4’s
  • Any other required documentation

It is very important to note that you will incur new mortgage insurance premiums if you go right to 95% of the home’s value even if you had already done so on the same property.  This is a brand new application with you as the sole borrower so a full new premium applies.   This is how it could look:

 

 

Home Value              $300,000

5% Equity                    $15,000

New Mortgage for   $285,000

Insurance Premium $8977.50

Total Loan            $293,977.50

 

So that my mortgage minions is a product which can help you through a very challenging time.  As always we are more than happy to answer any of your questions.  Until next time!