25 Apr

What Exactly Is a Reverse Mortgage?

General

Posted by: Brad Lockey

When a Reverse Mortgage Doesn’t Make Sense

In a nutshell, a CHIP mortgage or “reverse” mortgage is a mortgage that is secured by the client’s principal residence and as long as one of the client’s lives in the house, it never has to be repaid, not even the interest. “CHIP” stands for “Canadian Home Income Plan” by the way; however the lender who does these types of mortgage in Canada is called Homequity Bank.

It is probably easiest to explain using an example: Let’s assume a husband and wife aged 70 and 69 respectively live in a home that has been appraised at $500 000 and has no mortgage on it right now. Based on the value and their ages, CHIP would allow them to borrow up to $195 495 against the house. They do not have to take the full amount and can in fact choose a monthly income supplement. For example they could choose $50 000 in a lump sum and then $1 000 per month for the next 140 months.

So long as one of the applicants remains in the house, they never have to make a payment. If one of the spouses moves to a retirement home and the other stays in the house, they still don’t have to make any payments. Snowbirds also qualify……so long as the house remains your primary residence.

Here are some of the “requirements”:

  • Minimum age 55 for all applicants
  • Must be principal residence (no rentals)
  • All persons on title must be on mortgage


Two GREAT features of CHIP MORTGAGES:

1. NO INCOME VERIFICATION: Since the mortgage is not expected to be repaid until the house is sold or until the last homeowner leaves the property, no income verification is necessary. This is a great advantage to those who are “asset rich” but don’t show much income

2. NO CREDIT REQUIREMENTS: Many retirees have little or no credit history which makes it very difficult to get a loan or mortgage. With the CHIP mortgage no credit is no problem!

Common questions:

1. Does the bank own my house? No, this is registered against the title of the home the same as any other mortgage. The “bank” cannot force the sale of your home provided one of the applicants still resides in it.

2. Will the equity disappear in my house? CHIP mortgages are designed to limit the risk of the mortgage amount exceeding the value of the home. Your home is still increasing in value and the CHIP mortgage is only a portion of the value of your home so in most cases, the equity in your home continues to increase.

3. What is the cost to set up a CHIP mortgage? There is a fee ranging from $995 to $1495 to set up the original mortgage, plus you must pay for an appraisal and a lawyer to register the mortgage. This is clearly explained in the application process so you will be fully aware of all costs prior to setting up the mortgage.

4. What if I have an existing mortgage? A CHIP mortgage can still be set up however you must pay off the existing mortgage with the funds advanced. This is a common strategy for those who are about to retire and don’t want to make mortgage payments anymore.

If you have any other questions, please contact a Dominion Lending Centres mortgage professional.

19 Apr

Top 8 Benefits of Using a Mortgage Broker

General

Posted by: Brad Lockey

 

Top 8 Benefits of Using a Mortgage Broker
When shopping for a mortgage, many home buyers enlist the services of a Mortgage Professional.
There are several benefits to using a Mortgage Broker and I have compiled a list of the top 8:

1. Saves you time – Mortgage Brokers have access to multiple lenders (over 50!). They work with lenders you have heard of and lenders you probably haven’t heard of. Because their relationship with lenders is ongoing, Mortgage Brokers know what is available in mortgage financing and will be able to advise you on what your lending options are without all the leg work that you would have to do in order to find a small percentage of information that a Mortgage Broker already has in hand.

2. Saves you money – Mortgage Brokers, if they are successful, have access to discounted rates. Because of the high volume that they do, lenders make available discounted rates that are not available directly through the branch of the lender that you go to.

3. Saves you from becoming stressed out! – It can be very daunting to find a mortgage. A Mortgage Broker takes on that stress for you. Your Mortgage Broker will make sure all the paperwork is in place. They will keep in good communication with you so that you know what is going on with your mortgage and will keep you up to date with any complications so that there are no surprises.

4. Gives you access to lenders that are otherwise not available to you – Some lenders work exclusively with Mortgage Brokers. In these circumstances, the layman does not have access to these lenders and, therefore, does not have the option to use discounted rates and mortgage products that these lenders offer.

5. Services are free – Mortgage Professionals are paid by the lender and not by you. This is not a disadvantage to you. A good Mortgage Broker will ALWAYS have the best interest of the client in mind because if you, as a client, are happy, you will go tell your friends about the service you’ve received from the Mortgage Professional you work with. Mortgage Professionals rely on referrals, which means that if you are a happy customer, and you got the best deal available, you will tell your friends and family about them which will result in referrals and potential future business.

6. Take on every challenge – As Mortgage Professionals, we see every scenario out there and work to make sure that every client knows what is available to them for financing options for a mortgage. Damaged credit and low household income might be a deterrent for the bank, but a Mortgage Professional knows how to approach the lender and has the relationship to make sure every client has a plan and strategy in place to make sure there is a mortgage in their future.

7. The Mortgage Brokerage industry is monitored by governing bodies – Nowadays, as Mortgage Brokers, it is extremely important to have principles and values that are based on the best interest of the client. In fact, in order to become licensed, the Mortgage Professionals need to be well versed in the ethical and upstanding values that are outlined through the Financial Institutes Commission, a provincial governing body that is a watchman for this industry. FICOM’s mandate is to make sure every Mortgage Broker walks in integrity and in the best interest of their client.

8. The Mortgage Broker has a better understanding of what mortgage products are available than your bank – Interestingly, a Mortgage Broker has to be licensed and cannot discuss mortgages with you unless they are licensed. This is unlike the bank who can “internally train” their staff to sell the specific products available from their bank. The staff at your bank do not have to be licensed Mortgage Professionals.

While this is not an exhaustive list on the benefits of using a Mortgage Professional, it is compelling to see the benefits of using a Mortgage Professional rather than putting a mortgage together on your own.

At Dominion Lending Centres, we have an excellent rapport with the lenders we introduce our clients to. Our customer service is reflective of our relationship with our lenders. We are always professional and we always make sure our clients know every viable option they have for mortgage financing.

15 Apr

Private Mortgages Can Improve Your Financial Well-Being!

General

Posted by: Brad Lockey

Private Mortgages Can Improve Your Financial Well-Being!

A private mortgage can improve your financial well-being and using a reputable mortgage agent/broker will advise when it is suitable for your circumstances to enter into a private mortgage. Your mortgage agent will also advise a financial action plan to refinance you down the road to return to the prime lending marketplace.

Here are the facts on mortgage lending and when to use a private mortgage:

There are several types of mortgage loans in Canada including first mortgages, second mortgages and lines of credit. As we all know, these are available through well- known prime lending institutions like banks, credit unions, trust companies and independent financial institutions that only deal in mortgages to qualified borrowers.

There are also the institutional “alternative” lenders that have all the products mentioned above, however, they loan their money to individuals who do not meet prime lending guidelines. These loans would be considered “riskier” due to the fact that the borrower may not be able to prove income and may have challenged credit which will not meet the prime lender’s guidelines. These institutions often charge lender fees and higher interest rates. Institutional alternative mortgage lenders are most often used as a temporary solution that alleviates an immediate situation that once resolved, the mortgage is moved to a “prime” lending institution. Often times the alternative lenders restrict their lending areas, loan to value and credit and income criteria.

When a borrower doesn’t meet the alternative lender’s lending criteria, a private mortgage can be arranged for a temporary solution, just like the alternative lender. Investors/Lenders are usually individuals or private corporations, Self-Directed RRSP program lenders, who loan their own personal/corporate funds; believing investment in real estate is stable and want to earn a higher return on their money than they can make at their financial institution. These investors will take a more personal approach to the loan and are ready to hear your story, (usually with a sympathetic ear) and assess the amount of risk that they are being asked to take on. Income and credit is reviewed, but with less stringent guidelines than the alternative lenders. Again, lender fees and possibly brokerage fees will be charged.

Consider this scenario to explore why a private mortgage can work for you.

You worked for the same company for 10 years, they went bankrupt and shut down, it took you 9 months to find another job, but in the meantime, you used up all your savings as your EI payments weren’t enough. Your payments are behind on your $40,000 worth of debts which cost $800 monthly, and you owe $10,000 in property taxes and to CRA. Your house is worth $300,000, your current mortgage is $175,000, you need $50,000 to pay it all off plus $4,000 (estimated) to set up of a second mortgage including legal fees. It makes sense to retain your 2.25% first mortgage in order to give you time to restore your credit history and income. Therefore, a private second mortgage suits the situation. A second mortgage of $54,000 with interest only payments at 11% will cost you $484 monthly, creating a savings of $316 monthly plus CRA and the property taxes are paid off.

Some other reasons to borrow private funds.

  • purchase property where you don’t qualify with more “traditional” lenders;
  • pay off/consolidate debts into your property;
  • renovate your home;
  • pay for medical expenses;
  • supplement your first mortgage;
  • improve cash flow;
  • pay off debts to CRA or property taxes;
  • pay for your children’s post-secondary education;

Yes, private mortgages do have higher rates and fees, however, your mortgage agent is obligated to ensure that all parties to the transaction are fully aware of the costs going in and will provide the reason behind choosing a private mortgage. Your mortgage agent will outline why you don’t qualify for a prime or institutional lender at this time and review the financial benefits of entering into a private mortgage. Your mortgage agent will also explain the exit strategy to pay off the private mortgage down the road with the goal to get you back into the prime lending market.

Ask your Dominion Lending Centres mortgage broker if a private mortgage is right for you!

13 Apr

Top 10 Things to Consider Before Your Mortgage Matures

General

Posted by: Brad Lockey

Top 10 Things to Consider Before Your Mortgage Matures

1. Have you explored all your options. Once you receive your mortgage renewal statement, there is nothing easier than signing on for another term, heck 70% of everybody that received them from their current lender just signs over thousands of dollars. This may make sense in some cases, but your family and financial situation may changed over time. I can look for opportunities that may meet or exceed your current expectations.

2. Are you comfortable with your current payments. If your monthly payments are barely letting you break even each month then it might be time to reduce payments. On the other hand, if you are earning more income then why not pay down your mortgage faster and save thousands in interest over time. Have you reviewed your prepayment options?

3. Do you need cash flow for other things. Your priorities may have changed since you purchased the home. Things like your child(s) post secondary education, planning a career change or a major purchase may now be front and centre. With ‘today’s’ current market, there may now be access to additional equity in your home that can be used for other purposes.

4. Can you handle fluctuating rates. Some homeowners are comfortable with the ebb and flow of interest rates and some are not. It is best to base your decision on your personal situation and not what you read in the daily news. I can help you decide on a fixed or variable rate mortgage options, but ultimately it’s your decision.

5. Will you sell soon. If so, consider a shorter term mortgage that has flexible manageable terms if you decide to sell your home.

6. Are you thinking of a major renovation. Upgrades can increase the value of your home but the cost of having the work done can tie up a lot your money. Make sure to allow for ample finances to complete.

7. When do you want to be ‘mortgage-free.’ Increasing your payments will raise your monthly expenses now, but you will ultimately save thousands on interest in the long term. A mortgage-free lifestyle could be just around the corner.

8. Could you use your home equity to fulfill other goals. Refinancing a mortgage can be one way to free up cash you need for other things, which could even include purchasing another property.

9. Have your insurance needs changed. If your home equity has increased, there may not be the need for default insurance anymore.

10. Are you getting the best rates and terms. In a competitive mortgage environment your good credit history can make refinancing your mortgage work to your advantage. Dominion Lending Centres analyzes mortgage markets daily to ensure you don’t miss any money saving opportunities.

6 Apr

That Discounted Rate May Not Be So Discounted, After All

General

Posted by: Brad Lockey

That “Discounted Rate” May Not be so Discounted, After All

Not long ago, someone contacted us wishing to refinance their mortgage. They presently held a mortgage from one of the big banks. When this homeowner originally obtained her mortgage, the bank offered her a discounted rate of 2.99%. It matured in July of 2016, however, when they contacted us at Dominion Lending Centres, they wanted to refinance to improve their cash flow because of recent major renovations. The mortgage was over $600,000.

At first thought, an Interest Rate Differential (IRD) penalty might seem to be so small because of the effective rate of 2.99%, that only a 3 month penalty would apply to break their existing mortgage. Wrong. Because the rate for the original mortgage was discounted from 4.64%, 4.64% was used when calculating the IRD penalty. So, instead of paying $5,157 dollars, the client was told they had to pay over $23,000 in order to break their mortgage with the bank.

A mortgage broker-channel lender, and there are many, uses the contract, or effective rate, when they calculate the IRD penalty on fixed rate mortgages, unlike the banks. Because they use the actual contract rate, the penalty would have been the lower one in the example above. An amortization scenario would determine if breaking the existing mortgage would be worth it by seeing the crossover point in time for making up the difference in savings. In the case above, it was not worth breaking, and the client had to wait until their mortgage matured.

The banks have, in recent years, implemented a new way of registering mortgages to assist in these situations. They often now register the loan as a collateral charge loan rather than a mortgage. This allows the bank to refinance the home loan on a house without a penalty if the client needs extra cash in the future. The disadvantage to this is that in order to break the loan agreement, even at maturity, the client either has to pay a lawyer or title insurance company to help break the loan agreement, costing approximately $600-$1000. Aware of this, at renewal, the bank can price the renewal rate accordingly, as they are aware that the client must pay this fee in order to leave the bank.

When purchasing a home or renewing or refinancing, it pays to ask details about pre-payment privileges and the costs associated with discharging your mortgage before the maturity date, as well as how the loan is going to be registered, ie. as a regular mortgage or a collateral charge loan.

4 Apr

The 10 Don’t’s of Mortgage Closing

General

Posted by: Brad Lockey

 

The 10 Don'ts of Mortgage Closing

Okay, so here we are… we have worked together to secure financing for your mortgage. You are getting a great rate, favourable terms that meet your mortgage goals, the lender is satisfied with all the supporting documents, we are broker complete, and the only thing left to do is wait for the day the lawyers advance the funds for the mortgage.

Here is a list of things you should NEVER do in the time between your financing complete date (when everything is setup and looks good) and your closing date (the day the lender actually advances funds).

Never make changes to your financial situation without first consulting me. Changes to your financial situation before your mortgage closes could actually cause your mortgage to be declined.

So without delay, here are the 10 Don’ts of Mortgage Closing… inspired by real life situations.

1. Don’t quit your job.

This might sound obvious, but if you quit your job we will have to report this change in employment status to the lender. From there you will be required to support your mortgage application with your new employment details. Even if you have taken on a new job that pays twice as much in the same industry, there still might be a probationary period and the lender might not feel comfortable with proceeding.

If you are thinking of making changes to your employment status… contact me first, it might be alright to proceed, but then again it might just be best to wait until your mortgage closes! Let’s talk it out.

2. Don’t do anything that would reduce your income.

Kind of like point one, don’t change your status at your existing employer. Getting a raise is fine, but dropping from Full Time to Part Time status is not a good idea. The reduced income will change your debt service ratios on your application and you might not qualify.

3. Don’t apply for new credit.

I realize that you are excited to get your new house, especially if this is your first house, however now is not the time to go shopping on credit or take out new credit cards. So if you find yourself at the Brick, shopping for new furniture and they want you to finance your purchase right now… don’t. By applying for new credit and taking out new credit, you can jeopardize your mortgage.

4. Don’t get rid of existing credit.

Okay, in the same way that it’s not a good idea to take on new credit, it’s best not to close any existing credit either. The lender has agreed to lend you the money for a mortgage based on your current financial situation and this includes the strength of your credit profile. Mortgage lenders and insurers have a minimum credit profile required to lend you money. If you close active accounts, you could fall into an unacceptable credit situation.

5. Don’t co-sign for a loan or mortgage for someone else.

You may have the best intentions in the world, but if you co-sign for any type of debt for someone else, you are 100% responsible for the full payments incurred on that loan. This extra debt is added to your expenses and may throw your ratios out of line.

6. Don’t stop paying your bills.

Although this is still good advice for people purchasing homes, it is more often an issue in a refinance situation. If we are just waiting on the proceeds of a refinance in order to consolidate some of your debts, you must continue making your payments as scheduled. If you choose not to make your payments, it will reflect on your credit bureau and it could impact your ability to get your mortgage. Best advice is to continue making all your payments until the refinance has gone through and your balances have been brought to zero.

7. Don’t spend your closing costs.

Typically the lender wants to see you with 1.5% saved up to cover closing costs… this money is used to cover the expense of closing your mortgage, like paying your lawyer for their services. You might think that because you shouldn’t take out new credit to buy furniture, you can use this money instead. Bad idea. If you don’t pay the lawyer… you aren’t getting your house, and the furniture will have to be delivered curb side. And it’s cold in Canada!

8. Don’t change your real estate purchase contract.

Often times when you are purchasing a property there will be things that show up after the fact on an inspection and you might want to make changes to the contract. Although not a huge deal, it can make a difference for financing. So if financing is complete, it is best practice to check with me before you go and make any changes to the purchase contract.

9. Don’t list your property for sale.

If we have set up a refinance for your property and your goal is to eventually sell it… wait until the funds have been advanced before listing it. Why would a lender want to lend you money on a mortgage when you are clearly going to sell right away (even if we arranged a short term)?

10. Don’t accept unsolicited mortgage advice from unlicensed or unqualified individuals.

Although this point is least likely to impact the approval of your mortgage status, it is frustrating when people, who don’t have the first clue about your unique situation, give you unsolicited advice about what you should do with your mortgage, making you second guess yourself.

Now, if you have any questions at all, I am more than happy to discuss them with you. I am a mortgage professional and I help my Dominion Lending Centres clients finance property every day. I know the unique in’s and out’s, do’s and don’ts of mortgages. Placing a lot of value on unsolicited mortgage advice from a non-licensed person doesn’t make a lot of sense and might lead you to make some of the mistakes as listed in the 9 previous points!

So in summary, the only thing you should do while you are waiting for the advance of your mortgage funds is to continue living your life like you have been living it! Keep going to work and paying your bills on time!

Now… what about after your mortgage has funded?

You are now free to do whatever you like! Go ahead… quit your job, go to part time status, apply for new credit to buy a couch and 78″ TV, close your credit cards, co-sign for a mortgage, sell your place, or soak in as much unsolicited advice as you want! It’s up to you!

But just make sure your mortgage has funded first.

Also it is good to note, if you do quit your job, make sure you have enough cash on hand to continue making your mortgage payments! The funny thing about mortgages is, if you don’t make your payments, the lender will take your property and sell it to someone else and you will be left on that curbside couch.

Obviously, if you have any questions, please get in touch with us here at Dominion Lending Centres!

1 Apr

Do You Really Need a Ferrari Level Mortgage?

General

Posted by: Brad Lockey

 

Do You Really Need a Ferrari Level Mortgage?

We all want the best.
For instance, a Ferrari is way better than a minivan. It’s faster, sleeker and much more prestigious. But what if you have three children and drive to hockey every Saturday and need the extra space? All of a sudden that minivan is looking much more appealing. Then when you factor in the higher costs associated with maintaining every single aspect of that Ferrari? That minivan is downright shiny.

This theory applies to your mortgage too. I’ll admit there is something reassuring about a brick and mortar building which you can visit up to seven days a week and be greeted by a friendly clerk who helps you do whatever it is you need to do. But consider for a moment if the value you placed on that building were misguided. That the prestige many of us place on being with a major bank for our mortgage is not quite what we thought. What if in making the choice to deal with your bank you doomed yourself to higher costs and hidden clauses? All of a sudden your Ferrari of a bank seems less appealing.

Let’s look at a few of the unexpected costs you can be hit with:

1. Payout penalties – there is no standard on how lenders charge this penalty if you break the mortgage. Your mortgage is a contract and you will have to pay a fee to get out early. I have seen these range from $3,500 to $18,000 on the same exact mortgage with the only difference the lending institution. Life happens and you may end up needing out early due to a marital break down, a job loss or other life event. I would also caution that some of the crazy low mortgage rates out there come with an additional penalty. You could be charged 2.75% of the principle PLUS the regular penalty.

2. Prepayment privileges – Did you know that some lenders do not apply your extra payments right away? It’s very true. They hold the funds in a separate account where they generate and keep the interest gains while you miss out on the full benefit you are striving to achieve.

3. Interest compounding periods – Did you also know that some lenders compound interest on a Home Equity Line of Credit monthly? Einstein identified compound interest as the 8th wonder of the world and stated that those who know how to use it properly will benefit greatly. This monthly calculation difference over that of a semi-annual will cost you more in the long run.

4. Collateral mortgages – A collateral mortgage is where the lender registers on the title that you owe them more than you actually do. The benefit is that you can borrow additional funds down the road if you so choose without having to visit a lawyer as there is no change to the title of the property. The downside is that these mortgages are much harder to switch out a new lender at renewal which could leave you with a higher than market best rate. Your other borrowing such as for a vehicle or credit cards can now be tied to your mortgage through the nasty fine print. Depending on the lender, you may be required to pay out all of the borrowing associated with the mortgage if you sell. This can leave you in a poor position when you go to buy again with less than you thought as a down payment.

5. Porting Policies – Some of the banks have strange policies. For example, one has a policy where you keep the current mortgage as is and any new funds are taken in a new term at a new rate with a new renewal. That leaves you never able to move your mortgage to a new lender without incurring some penalty. You are stuck potentially not being able to get the best rates which costs you greatly.

All I’m saying is this: ask questions before you sign.
Lots of questions. Know if you are opting for a Ferrari when what you really need is the flexibility, extra leg room and lower costs of the minivan.

At Dominion Lending Centres, we can help find the right mortgage and the best rate – give us a call!