12 Things Canadians Don’t Know About Second Mortgages

Mortgage Tips Kristina Crosbie 12 Mar

If you’re a Canadian homeowner, you’ve probably heard about second mortgages. But what is a second mortgage? It’s a type of loan that is secured by your home, similar to a first mortgage provided by a traditional bank. Over time you build up equity in your house, and a second mortgage allows you to use the equity you’ve built up.

It is your money after all!

According to Business Insider, there are over “1.91 million Canadians with HELOCs, and even more with a second mortgage.” A HELOC, or home equity line of credit, is a type of second mortgage, as you’re basically adding a second loan on top of your existing loan in order to access equity.

Yet despite their prominence, second mortgages and loans are not well understood or properly leveraged by Canadians. Here are 12 things that you likely didn’t know about second mortgages, which can help you get the most out of an asset that you’ve built equity in.

1. There are different types of second mortgages

What exactly is a second mortgage? These loan products come in a couple of different forms. For instance, a revolving HELOC offers the borrower continuous access to equity as they pay off what they previously owe (the principle), much like how a credit card works.

This type of loan can also be a closed second mortgage, which means that you get one lump sum of cash from your equity, and gradually pay it down, much like an auto loan.

HELOC’s are typically only offered to those in urban areas who have a strong credit profile. If you are experiencing credit challenges or limited income, private mortgages are likely your only option.

2. There are two common uses of second mortgages
The most common usage of a second mortgage is to pay off high-interest consumer debt or to use the funds for home renovations or upgrades. With the average credit card interest rate being 15%, you could save a lot of money by leveraging a second mortgage.

If you have a credit card balance of $30,000, for instance, your minimum monthly payment will be around $600 a month (assuming a 3% minimum payment requirement). If your credit card interest rate is 15% APR, this will cost you about $4,500 in interest in just your first year, before you even touch the principal amount you owe.

So many people are adding a second mortgage, paying off the credit card with that, and then enjoying a much reduced interest rate because a second mortgage is secured by an asset: your home.

3. Your home is collateral
When you take out a second mortgage, you are using your home as collateral to the lender. This means that if you do not pay, the bank has the option to foreclose just as it does with a first mortgage. That said, because you have a physical asset backing your loan, your interest rate will be substantially lower.

4. The power of interest-only payments
For many second mortgage products, you can elect to only make payments on the interest. This creates lower monthly payments, and allows you to have affordable access to the equity in your home before you are ready to sell.

Consider someone who wants to remodel before selling their home or renegotiating their primary mortgage. They can take second mortgage, use those funds to renovate, making interest-only payments. When it comes time to sell or renew, the home is valued at a higher price thanks to the renovations, and then the homeowner pays off the second mortgage.

5. Can be used to avoid PMI
When you apply for a conventional mortgage, if you do not have 20% to use as a down payment you will be required to obtain private mortgage insurance (PMI). In Canada, this is what we typically refer to as your Canadian Mortgage and Housing Corporation (CMHC) fees. And they can be quite high!

On a $500,000 mortgage loan with 5% down, you will be paying 4% CMHC fees. That’s a total of $19,000!

Taking out a second mortgage along with the first mortgage is one way borrowers can avoid PMI. A second mortgage can add a monthly payment to your budget, but can be a cheaper option than PMI.

6. You can use your equity for… Anything!
One of the most attractive benefits of buying a home is the potential to use the equity you have built up over time. Why let it sit there? Let that money you’ve earned start working for you!

You can use the funds however you’d like, but many people choose to use a second mortgage for home improvements, other investments, a child’s college education, an emergency fund, and more.

One popular usage of a second mortgage is to make an investment, like buying a rental property. Instead of saving up 20% for a down payment, you can tap into the equity of your existing home. The bonus of using a second mortgage for investment purposes is that the entire interest on that loan now becomes a tax deduction.

7. How much can I borrow?
That depends on how much equity you have built up in your property. Generally speaking, you will only be able to take out a portion of the of equity you’ve built up. Lenders have restrictions on the loan-to-value (LTV) ratio and take second mortgages into consideration.

For instance, most second mortgages allow you to access up to 80% of the equity you have accumulated in your property (85% in major cities). If you own a property valued at $500,000, and your first mortgage is for $325,000, you’d possibly be able to get access up to $75,000 upon obtaining a second mortgage if you’ve been approved to borrow 80% of the market value of your home.  If however, you owed $400,000 on your first mortgage, you wouldn’t be able to access any new funds with a second mortgage approved to 80% LTV, as you’re already at 80% LTV ($400,000 / $500,000)

On the other hand, a closed second mortgage may provide you with access to a greater amount of your equity. Specific questions like this should be addressed with a mortgage broker who specializes in second mortgages.

8. There are some fees
Second mortgages are a great option to keep in mind, but they do come at a price. You’ll need to pay some fees, so be sure to speak with a professional about getting a second mortgage.

9. You and your team MUST compare interest rates
Much like you would with a first mortgage, you should always consider the rates for second mortgages offered by different lenders. This is why working with a professional broker who has access to multiple lenders is your best option.

10. You can consolidate debt
Buried in credit card debt? If you have hefty balances on your credit cards or an enormous pile of student loans to pay back, a second mortgage offers you a way to turn all those high monthly payments into one affordable payment and which can be easier to manage vs. multiple payments with disparate due dates.

You can get a much lower rate on a second mortgage than your credit cards, so this can save you money in the long run and simplify your monthly debt payments, but even when the rate is the same or higher, you can save on cash flow by reducing your monthly payments  Most credit cards require up to 3% of the outstanding balance. So if you are only making your minimums, or even worse, missing them! But you have at least 20%+ equity in your home (or more in a rural location) then this is a key sign you should be looking at utilizing that equity.

11. Second mortgages help with bad credit
If you have bad credit, then borrowing money to consolidate or pay off debt can be challenging. Those with poor credit scores often think obtain a second mortgage is impossible, but ironically, this is likely one of the best tools to help them repair that credit.

Gaining access to your equity can allow you to pay off all of those overdue bills, immediately, and give you piece of mind to get your finances back in order.

A simpler, single payment setup, can also make it easier to have a single target to hit monthly.

Most traditional banks, and even many brokers and alternative lenders, do not offer second mortgages for bad credit borrowers. It’s important to speak with a mortgage professional not tied down by these burdensome restrictions, because second mortgages are possible even with a poor credit score. Canada is filled with lenders to work with, and you need someone who will help you find them.

12. Private lenders may have looser qualifying guidelines
If you and your mortgage professional decide to go the route of a private lender for your second mortgage, then you may be subject to less stringent conditions than at a traditional bank. Private lenders are exactly that, private, so they are not bogged down by regulations and internal bank policies, and are therefore much more flexible. This is great for the consumer!

That being said, most private lenders are looking at a mix of items, and so the more you can help make your case why you are a good risk, the better the pricing and overall the more you will be able to borrow in the alternative mortgage market.

A second mortgage is a tool, use it as such
Second mortgages offer you the opportunity to use the equity in your home for a number of different situations. If you have bad credit and need to consolidate debt, pay off other loans, renovate your home, invest, a down payment on your next property, funds to support yourself while selling, paying off property or tax arrears, or need emergency funds, a second mortgage is a great tool for Canadians to improve their financial well-being.

Read the full article here. 

Five Tips To Increase Your Credit Score Quickly

Mortgage Tips Kristina Crosbie 3 Mar

In order to qualify for certain mortgage and loan products, a minimum credit score is essential. Even if your score is sufficient to qualify, you might find the rates being offered will be lower than if you had a higher score.

Having worked with thousands of personal credit histories over the years, we have developed some strategies that sometimes give you that much needed quick score boost—sort of like jumper cables for credit!

1. Use The Optimal Utilization Strategy
When maximizing your personal credit score, you should look at your utilization of available credit for each individual credit facility. By this I mean what percentage of your available credit is the balance being reported?

Percentage utilization can have a significant impact on your personal credit score. Equifax Canada states utilization has a 30% weighting on your personal credit score.

One scenario: maybe a furniture store or a home improvement store offered you “don’t pay for one year.” The balance you are carrying on this card might be relatively small, but if it’s at or over the actual card limit, this is dragging down your personal credit score. Consider paying it off now!

Another scenario: suppose you have three credit cards, each with a limit of $10,000.

And let’s say one card has a balance owing of $9,900 and the other two have zero balances. This might happen because you are trying to earn rewards on one particular card, or maybe you said yes to a balance transfer promotional offer.

Chances are your credit score is lower than if the usage was spread across the three cards equally—i.e., each with a balance owing of $3,300, or 33% of the limit.

Overall, your usage remains unchanged, but now you no longer have an individual card reporting at 99% utilization.

If you can afford to cover or reduce the balance owing on the one with a balance of $9,900, you should see a nice little score boost.

2. Use the Statement Date Strategy
It may be that the best thing for you to do is simply reduce balances owing on your credit facilities. If time is of the essence, you should plan this carefully and do it in the correct order.

Gather up your most recent available statements for all relevant credit facilities. And note the day of the month when the statement was printed. Most of the time it’s the balance on that statement date that is being reported to the credit bureau.

And give or take a day, it is safe to assume that same day of the following month is when the next statement will be issued.

So, plan your payments accordingly. And allow several business days for online payments to process in time. If you are paying a credit card issued by your own bank, you should see transfer payments being processed either instantly or overnight.

3. Pay It Down and Keep It Down
This is especially important when your limits are not very large. Suppose you are a model citizen who uses her credit card frequently, and pays the balance in full every month after receiving the monthly statement, and before the due date.

That is the “correct way” to manage your credit—taking advantage of the grace period you are given by all card issuers.

But these days, there is little benefit to trying to use up the entire grace period because current account interest rates are so low they are pretty much negligible. It’s far better to pay your balance in full before your statements come out. You are even more of a model citizen, and now the balance being reported to the credit bureau will always be extremely small, if anything.

4. Exercise All Dormant Credit Cards and Lines of Credit
Some people have credit facilities they never use. People tend to favour one particular credit card (maybe we like their rewards program) and we might neglect our other cards. And most of the time we don’t even need our personal line of credit.

If you are trying to maximize your credit score, it is good to use all available credit fairly regularly, even if it’s just for a nanosecond.

It will rarely be correct to close these older credit facilities since they are contributing ‘score juice.’ Equifax Canada states your history can have a 15% weighting on your personal credit score.

These credit facilities can become stale and may not be not pulling their weight on your personal credit history. Update the DLA (date of last activity) with a modest transaction and then pay it online immediately. If it’s a personal line of credit, just transfer $10 to yourself and the next day transfer back $10.50.

If you notice you have credit cards that have not seen daylight for months or years, take them to the supermarket or gas station, use them just once, and pay online right away. After the next statement these cards will report the date of last activity as the current month and year, and that may give you some much-needed points.

5. Scour & Clean All Reporting Errors
There might be some incorrect information in your personal credit history that’s needlessly dragging down your score.

A few examples include:

You have two or more personal profiles with the credit bureau and your information is scattered and diffused. Combining it all into one credit report could well increase your score and strengthen your look. (This often happens to people whose name is hard to spell, or who have legally changed their name).
Late payments being reported when it’s not you. Maybe you have a relative with the exact same name.
That router you returned to the cable company is showing as a collection; but in fact you returned it to the local store.
You completed a consumer proposal and all the debts included in the proposal should be reporting zero balances and should not carry an “R9” rating. This generally means an account has been placed for collection or is considered un-collectible.
There may be incorrect late payments. Equifax Canada states payment history has a 35% weighting on your personal credit score.
Mortgage brokers can fast track an investigation with Equifax Canada for you. What might take you two months, we can get done in a few days. Keep that in mind if time is of the essence.

The Takeaway
This overview is a fairly simplistic way of looking at your personal credit report and highlights initiatives specifically intended to give your credit score a quick boost. These tips are not necessarily the same as when you are managing for optimal credit health or interest-expense minimization.

Read this article by Ross Taylor here.

Why MPP Mortgage Insurance?

Mortgage Tips Kristina Crosbie 27 Feb

At Dominion Lending Centres we recommend the Maulife Mortgage Protection Plan (MPP) Insurance for home buyers. Here are 10 reasons why MPP is the best for our clients.

We say YES!
Manulife Mortgage Protection Plan (MPP) Insurance offers immediate protection when you submit a life insurance application, regardless of your health. As long as you are between the ages of 18 and 65, and your monthly mortgage payment is less than $10,000, you will not be declined. Even if you don’t qualify for full life and/or disability coverage you will still receive accidental death and/or accidental disability insurance at a reduced premium.

And we say YES right away
You can walk out of your broker’s office with the knowledge that you are already protected. You just have to pay the first premium when it is due.

Your Health Matters
Saying “yes” to everyone doesn’t mean that we don’t take your health into account. Everyone must provide medical information with their application. If you have some health problems, you may pay a little more, or your coverage may include some extra exclusions.

Your premium doesn’t change
Our premium rates are very competitive when compared to other mortgage insurance offers, and do not increase with your age or changing health conditions.

Satisfaction guaranteed, or your money back
Take up to 60 days to review your policy and if you’re not completely satisfied, simply cancel within those 60 days and we will refund any premiums you’ve already paid. The 60 days starts from the time the insurer receives your completed application and premium payment information.

Disability coverage that’s better than ever
Our total disability protection is still one of the most affordable choices. The benefit amount automatically adjusts when your interest rate changes at no extra cost. In addition, these benefits do not have to be reported as income to either CPP or your private disability insurer, and are not subject to income taxes.

We care about your health, not your occupation
Unlike conventional disability insurance, we don’t look at your job or your income when you apply, only at your health. Self-employed individuals, seasonal and part-time workers are all fully eligible if they meet the other eligibility requirements for this product. We also don’t require you to buy life insurance. You can buy disability protection on its own.

Portable coverage with prior coverage recognition
You can transfer your mortgage whenever and wherever you like, without fear of losing your protection. Even if additional mortgage funds are advanced, only the premium for your additional coverage will be based on your then current age. The amount of coverage you already had will remain untouched, and can’t be taken away no matter what your health situation may be at that time.

We will “bridge” the gap during your claim process.
With our Bridge Benefit, we will start making your mortgage payments as soon as we get your completed life insurance claim form, and will continue to do so for as long as it takes to reach a final decision about the claim.

MPP is underwritten by The Manufacturers Life Insurance Company
A trusted name and industry leader.

Types of Mortgages in Canada

Mortgage Tips Kristina Crosbie 20 Feb

Before deciding the types of mortgages that may be right for you, you’ll have to make another important decision – the type of lender you’d like to work with.

In Canada, there are three main types of lenders: A lenders (banks, credit unions and monoline lenders), alternative lenders, and private lenders. The A lenders (big banks) control the lion’s share of this market, but that doesn’t mean there aren’t other options out there.

Credit unions and monoline lenders are also worth considering. You may be able to find a mortgage product better suited to your needs at a lower interest rate with lower mortgage penalties. You won’t know unless you take the time to explore these options with a mortgage broker.

Now that you have a basic understanding of lenders, let’s take a look at the types of mortgages in Canada and how they apply to you.

Institutional mortgages

Conventional Mortgages: These are the types of mortgages where you’re making a minimum down payment of 20 percent. The loan-to-value would most likely be 80 percent or less, since the lender is financing the remainder of the home purchase. You are not required to purchase mortgage default insurance in this case, although your lender will likely require that you buy home insurance as a condition of the mortgage.

High Ratio Mortgages: When you have a down payment of less than 20 percent, then your mortgage is considered high ratio. In this case, the property’s loan-to-value would most likely be over 80 percent. As such, you’re required to get mortgage default insurance. Contrary to popular belief, mortgage default insurance doesn’t protect you. It protects your lender in the event that you default (fail to repay) your mortgage. Mortgage default insurance is typically rolled into your mortgage and paid along with your regular mortgage payments.

Open/Closed Mortgages: An open mortgage is where you can pay off the mortgage in full at any time without facing a penalty. A closed mortgage, on the other hand, is a mortgage where you’re restricted by the amount you’re able to pay towards the mortgage. Open mortgages typically come with higher mortgage rates than closed mortgages. That being said, closed mortgages usually come with some prepayment privileges, such as increasing your payment and making lump sum payments.

Fixed Rate Mortgages: With a fixed mortgage, your mortgage rate remains the same during your mortgage term. Mortgage terms commonly vary in length from one to five years. Five-year fixed rate mortgages are popular among Canadians because your mortgage rate is guaranteed to remain the same for five years. The rates on fixed rate mortgages are based on the government of Canada bond yields of similar terms.

Variable Rate Mortgages (VRM): With a variable rate mortgage, your mortgage rate can vary (change) during the mortgage term. This happens when your lender changes its prime rate (this likely occurs when the Bank of Canada changes its overnight lending rate). The rate on variable rate mortgages is typically lower than a fixed rate, although it’s important to be aware that your rate can go up during your term. Although there’s the potential to save money, it’s not for the risk averse.

Portable Mortgage: Portability is a common mortgage feature of most institutional mortgages. With a portable mortgage, you can transfer it from one property to another without facing a penalty or requalifying. Not every lender offers this and there are specific terms and conditions that you must follow, so make sure you understand before signing on the dotted line.

HELOCs: As the name alludes, a home equity line of credit (HELOC) lets you borrow equity from your home. Although you can use the funds as you see fit, common uses include debt consolidation and home renovations. You can borrow up to 65 percent of the value of your home as a HELOC (provided your HELOC and mortgage don’t exceed 80 percent of your home’s value).

Cash Back Mortgage: These are types of mortgages whereby you receive cash up front. These funds can be used towards anything except your down payment (i.e. moving expenses, furniture, etc.). The interest rate tends to be higher on this type of mortgage. You’ll also be required to pay back the cash on a prorated basis if you break your mortgage during the term.

Renovation Loan: Many of the above lending products can be packaged as a renovation loan, where funds are used to increase the value of a home through additions. These can include new windows, decks, basements, remodeling, driveway extensions, and more.

Alternative mortgages

Reverse Mortgage: These are types of mortgages where homeowners who are 55 years old or older can borrow against the equity in their home, receiving it as a lump sum or monthly payment. A reverse mortgage usually makes the most sense for seniors on a fixed income who otherwise don’t qualify for a HELOC. When the property is sold or the homeowner passes away, the amount for the reverse mortgage is payable to the lender.

Private mortgages

Bridge Mortgage: A bridge mortgage (or bridge financing as it’s commonly known) is a temporary loan when you sell your current home and buy a new one. Bridge financing is needed when your closing dates don’t match up (i.e. the closing date on your new home is sooner than your current home).

Second Mortgage: A second mortgage refers to a property with at least two mortgages. As the name alludes, a second mortgage comes after your initial (first) mortgage and typically has a higher interest rate. A first mortgage simply implies that there is only one loan secured against your property such as a conventional or high ratio mortgage noted above.

Commercial and construction lenders

Commercial Lenders: A commercial lender is a lender who offers commercial mortgages secured by a commercial property, such as an office building, apartment building or shopping centre. The mortgages funds are typically used to acquire or redevelop a commercial property.

Construction Lenders: A construction lender is a lender who offers mortgage financing that can be used towards the construction of a real estate development. This is the financing that can help get shovels into the ground on a new development.

As you can see, there are a number of different types of mortgages that may apply to your particular financial situation. This is why it’s important to work with a mortgage professional to help you navigate the various mortgage types.

Whether you are applying for a brand new mortgage, refinancing, or need some quick cash with a second mortgage, there are various types of mortgage products that can help you achieve your goals. Before automatically jumping to one of the big Canadian banks, consider your options with alternative lenders.

They may have exactly what you are looking for—at better terms and lower rates!

Read the full post here.

Learn How To Get Financially Healthy

Mortgage Tips Kristina Crosbie 13 Feb

Your financial state can greatly affect your ability to get a mortgage or loan. It can also increase the amount of unnecessary stress in your life. Here are some tips to get financially healthy and manage your debts, so they don’t manage you.

Begin with budgeting
The Financial Consumer Agency of Canada recommends that everyone start with a budget, which is a plan that keeps you on track in terms of how much you’re spending versus how much you’re earning. A budget is key to making sure you don’t overspend and gives you a roadmap for developing a savings plan. It’s especially important for people who have trouble paying off debts, who want to plan for big purchases such as a car or house, or those needing to save for retirement.

Before you develop a budget, it’s a good idea to first track your expenses for a couple of months to see where your money is going. Separate these expenditures into items that you need, such as groceries, mortgage payments or rent, and items you want, such as dinner out or a new pair of shoes.

Once you have an idea of what you’re spending, see if you’re covering your expenses and have something left over. Budget calculators are handy tools to help track spending. If more money is going out than coming in, you need to look where you can cut expenses and/or increase your income, otherwise, you’ll be well on your way to accumulating debt.

Have a plan to pay down debt
Despite best intentions, Canadians spend more than they earn. Household debt levels are up and the debt-to-disposable-income ratio is on the rise, according to Statistics Canada. The average Canadian owes nearly $1.79 for every $1 of household disposable income.

High debt has many side effects. One of them is stress. According to a survey by the Canadian Payroll Association, 40 percent of respondents said they felt “overwhelmed” by the amount of money they owe. Financial stress can also lead to serious health issues, such as heart disease and high blood pressure, as well as anxiety and depression.

Having a plan to pay down debt is important. Once you have a list of all your debts, how much your payments are and interest rates on each, decide on how you will pay them down. Look at your budget and see what time frame is possible and decide what debts to pay off first. Some people choose to start with the highest interest debt first. Others might choose to start with the smallest debt, to establish a sense of accomplishment and motivate them to tackle the rest.

It’s also important to talk to your creditors to discuss your financial situation. You might be able to get lower interest rates, extend your repayment terms so that your monthly payments are smaller or consolidate your debts, which lets you pay off more, high-interest debts with one regular payment at a better rate.

Understanding credit scores
The amount of debt people have and how well they manage it directly impacts their credit rating and ability to borrow at good rates. Creditworthiness is what traditional financial institutions weigh when considering a mortgage or loan application. One of the first things they do is look at credit scores and credit history. The better these two are, the lower your interest on any debt you do incur will be, and the sooner you can pay off your debt.

Your credit score is a number that ranges from 300 up to 900 and it is based on such criteria as:

Payment history (Do you pay on time? Are you periodically or always late?)
Credit utilization ratio (This refers to how much of your available credit you are using, and experts recommend less than 30 percent)
Length and history of accounts (Do you have a variety of credit accounts?)
Over time, you want to build and maintain a good credit score. Some tips to get that score up include paying bills on time, paying more than the minimum amount, getting your balance down and having a variety of credit.

If you have no credit history at all, or have weaker credit, you can opt for a secured credit card, which is a credit card that’s backed with a cash deposit as security. Using it can help raise that credit score.

Commit to financial fitness
Financial health affects all aspects of life, so it’s important that you’re able to manage your money instead of it managing you. The federal government has many educational tools and information sheets to help you improve your financial literacy.

Read the article by Home Trust here.

Why Everyone Should Use a Mortgage Broker

Mortgage Tips Kristina Crosbie 11 Feb

Hiring a mortgage broker is one of the simplest parts of the home buying process, and yet, according to a survey by the Mortgage Professionals Association of Canada, 39% of first-time home buyers have a poor understanding of what brokers do and their role in the mortgage process. Once brokers’ services are explained, the likelihood of respondents to use one jump from 36% to 59% (and even higher as understanding increases). If you don’t know about the role that mortgage brokers play in the process of getting a mortgage, you could be leaving thousands of dollars on the table. Here are seven reasons why you should use a mortgage broker – even if you’ve never heard of them before.

Lower rates
The most obvious reason that people choose to obtain a mortgage through a mortgage broker is that brokers have access to multiple rates and lenders. Because of this, mortgage brokers have access to rates that may not always be advertised widely, and can be significantly lower than those advertised by banks or credit unions.

Accessibility
Many lenders’ rates and mortgages can only be accessed through a mortgage broker. Brokers can also vet lenders and negotiate on behalf of the buyer, and experienced brokers have relationships with these lenders, as well as the banks. Ignoring these lenders and choosing to get a mortgage with a bank can mean choosing harsher prepayment penalties for breaking your mortgage as well as a higher interest rate, which can cost buyers thousands upon thousands of dollars over the life of their mortgage.

Customization
A mortgage broker is able to better tailor a mortgage product to your specific needs, whether that be working with a lender who is more flexible when it comes to self-employed income or one who has more flexible prepayment terms. Because mortgage brokers have access to more lenders, they’re better able to find a lender and a mortgage based on your specific needs and financial situation in order to get you the lowest mortgage rates today.

Your Ally
A mortgage broker is on your side. “There’s a lot of things that happen when you buy your first home,” said Claire Drage, a mortgage broker with Mortgage Alliance. “A realtor will tell you so much, and the lawyer will tell you so much [but] a good mortgage agent can bring it all together in one place and connect the dots in what can be an overwhelming process.” A mortgage specialist at a bank wants to sell you their product. That’s not a bad thing, but their mortgage product may not be the one that’s most applicable to your situation.

Free to you
Mortgage brokers operate on commission and are paid by the lenders who ultimately grant you your mortgage. Brokers depend on referrals in order to get business, so it’s in their best interest to serve you as best they can. When interviewing a mortgage broker, ask about their fee structure and how they’re compensated to make sure you’re comfortable with it. There usually isn’t an out-of-pocket cost to you.

Experience
Brokers have seen many different clients in varying financial situations. When thinking about how your life may change over the life of your mortgage term, they’ll be able to provide you with options and scenarios that had never crossed your mind and account for them, potentially saving you thousands in the process over the life of your mortgage.

Read the full article by Kimberly Greene here.

Mortgages 101 – What You Need to Know

Mortgage Tips Kristina Crosbie 4 Feb

Mortgages in a Nutshell
Since homes are expensive, a mortgage is a lending system that allows you to pay a small portion of a home’s cost (called the down payment) upfront, while a bank/lender loans you the rest of the money. You arrange to pay back the money that you borrowed, plus interest, over a set period of time (known as amortization), which can be as long as 30 years.

How Do You Get a Mortgage?
The companies that supply you with the funds that you need to buy your home are referred to as “lenders” which can include banks, credit unions, trust companies etc.

Your credit score is the primary way that lenders evaluate you as a reliable borrower – that is, someone who’s likely to pay back the money in full without a lot of hassle. A score of 680-720 or higher generally indicates a positive financial history; a score below 680 could be detrimental, making you a higher risk. Higher risk = higher rates!

How Mortgages Are Structured?
Down payment: This is the money you must put down on a home to show a lender you have some stake in the home. Ideally you want to make a 20% down payment of the price of the home (e.g., $60,000 on a $300,000 home), because this will allow you to avoid the extra cost of Mortgage Default Insurance which is mandatory with all down payments of less than 20%.

Every mortgage has three components: the principal, the interest, and the amortization period.

Mortgages are typically paid back gradually in the form of a monthly mortgage payment, which will be a combination of your paying back your principal plus interest.

Principal: This is the amount of money that you are borrowing and must pay back. This is the price of the home minus your down payment
taking the above example, purchase price $300,000 minus $60,000 down payment to get a mortgage (principal) of $240,000.
Interest rate: Lenders want to make money off you, so you will be paying them back the original amount you borrowed (principal) plus interest—a percentage of the money you borrow. The interest rate you get from the lender will vary based on: property, lender, credit bureau, employment and your personal situation.
Amortization: Means the life of the mortgage, or how long the mortgage needs to be, in order to pay off the complete loan (principal) plus interest. Mortgage loans have different “amortizations,” the two most common terms are 25 & 30 years.Within the life of the mortgage (amortization) you will have a Term. The length of time that the contract with your mortgage lender including interest rate is set up (typically 5 years). After your term completes, you can renew your mortgage with the same lender or move to a new lender
 
When to Get a Mortgage

First Step: connect with a Mortgage Broker for a mortgage before you start hunting for a home. You need to know what you can afford – especially with all the new government regulations.
Ideally you need a mortgage pre-approval, which an in-depth process where a lender will check your credit report, credit score, debt-to-income ratio, loan-to-value ratio, and other aspects of your financial profile.

This serves two purposes:

It will let you know the maximum purchase price of a home you can afford.
A mortgage pre-approval shows home sellers and their realtors that you are serious about buying a home.

Types of Mortgages
How do you figure out which mortgage is right for you? Here are the 2 main types of home loans to consider:

Fixed-rate mortgage: This is the most popular payment setup for a mortgage. A fixed mortgage interest rate is locked-in and will not increase for the term of the mortgage.
Variable Rate Mortgage AKA Adjustable Rate Mortgages(ARM): A variable mortgage interest rate is based on the Bank of Canada rate and can fluctuate based on market conditions and the Canadian economy. A mortgage loan with an interest rate that is subject to change and is not fixed at the same level for the life of the term. These types of mortgages usually start off with a lower interest rate but can subject the borrower to payment uncertainty.

How to Shop for a Mortgage?
Use a mortgage broker, a professional who works with many different lenders to find a mortgage that best suits the needs of the borrower.

Brokers specialize in Mortgage Intelligence, educating people about mortgages, how they work and what lenders are looking for. Everyone’s home purchasing situation is different, so working with us will give you a better sense of what mortgage options are available based on the 4 strategic priorities that every mortgage needs to balance:

1. Lowest cost
2. Lowest payment
4. Maximum flexibility
5. Lowest risk

Most Canadians are conditioned to think that the lowest interest rate means the best mortgage product. Although sometimes that is true, a mortgage is more than just an interest rate. You can save yourself a lot of money if you pay attention to the fine print, not just the rate.

Banks tend to concentrate on the 5 year fixed mortgage rate (since that’s the best option for them)… rates are important, however your Dominion Lending Centres mortgage professional will look at the total cost of the mortgage. Brokers will advise & explain mortgage options, help you understand the implications of your choice and help you avoid the pitfalls of choosing a mortgage based on rates alone.

Read the full article by Kelly Hudson here.

5 Mistakes First Time Home Buyers Make

Mortgage Tips Kristina Crosbie 28 Jan

You are ready to buy a home! We know you are excited, but it’s important to do your homework before jumping in! We have outlined the 5 mistakes First Time Home Buyers commonly make, and how you can avoid them and look like a Home Buying Champ.

1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford.

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment, but fail to realize that there are a number of costs associated with closing on a home.

They include:

– Legal and Notary Fees
– Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
– Home Inspection fees

There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:

When was the roof last done?
How old is the furnace and water heater?
When were the windows last updated?

Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
A home inspection can turn up so many unforeseen problems such as water damage, foundation cracks and other potential problems that would be expensive to have to repair down the road.

5. Not Using a Broker
If you are relying solely on your bank to provide you with the best rate you may be missing out on great opportunities that a Dominion Lending Centres mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.

Find the full article by Geoff Lee Here.