Mortgages and Financing
Conventional or CMHC/Genworth Mortgages
If you are buying a home and are borrowing more than 80% of the home's value, the mortgage must be insured. This insurance protects the Lender against borrower default, and enables them to give you mortgage financing for the purchase of a home with as little as a 5% down payment. Mortgage default insurance can make a big difference in how quickly your mortgage loan is approved. The loan premium is directly related to risk, higher the risk, higher the premium – see chart below.
Loan-to-Value Premium
Table of CMHC Mortgage Loan Insurance Premiums |
|
Loan Size (% of Lending Value) |
Single Advance Premium (% of Loan) |
Up to and including 80% |
1.00% |
Up to and including 85% |
1.75% |
Up to and including 90% |
2.00% |
Up to and including 95% |
2.75% 2.90% |
Up to and including 100% |
3.10% |
What do all these numbers mean? Example if you are buying a property at a value of $100,000 and you are putting down 5% ($5,000) then your premium would be $2,612.50 ($95,000 x 2.75%) and this insurance premium will be added to your mortgage. This would make your mortgage $97,612.50. Using the same example and putting down $15,000 your insurance premium would be $1,487.50.
TOP OF PAGENew Purchases or Refinancing your Existing Mortgage
The process is basically the same. Sometimes it is best to blend your existing mortgage commitment with your new mortgage request. Other times it is better to break the mortgage. If that is not enough choices sometimes it is better to do a second mortgage behind the existing mortgage. As your mortgage consultant it would be my job to calculate the mathematical options and present them to you.
Pre-approval
Not every pre-approval is the same. For a pre-approval to be worth the paper it is written on you must make sure that a credit bureau has been done, that your employment has been fully reviewed and your down payment has been discussed in detail.
Once you have a good pre-approval you can negotiate your purchase with much more confidence and possibly eliminate the need for a financial condition on your offer. You want to make your offer as strong as possible to make it the winning offer.
Zero Down Mortgages
Yes they do exist and there is a market for them. However, as usual there is no such thing as a free lunch. Zero Down mortgages are typically 1 ½ % higher than “the best” 5 year rate. Now don’t run, the increase in rate is a cost worth paying if your other option is to wait till you have the minimum down payment (5%) to buy. Typically by the time you have saved the funds needed the housing market has increased equal to or greater than the cost of the higher interest rate. Keep in mind if you are renting you are basically paying 100% interest so anything less than 100% is a good rate.
Mortgages for the Self Employed and/or Contract Employees
In a nut shell self employed can be mortgaged but the options of what and how are too many to list here. As a self employed you know the hurdles of borrowing money. My job is to make it easier for you. Some self employed can be viewed by the lenders as the typical client others need specialized products. Lenders even have mortgages for the self employed that do not have their income taxes up-to-date. The rule of thumb on self employed is the more you can give them (clean credit / Notice of Assessments / larger down payments / down payments from own source vs. gift down payments) the lower your rate will be. In closing this subject I want you to remember that as a fellow self employed I understand that we like to make our “taxable” income as low as possible to avoid excess taxes paid. Sometime you have to pay a greater rate on your mortgage because of your lower taxable income. If you were to show a higher taxable income you would pay more income tax. Typically this income tax cost would be considerably larger that the increase cost in the mortgage interest rate. You can not have your cake and eat it too.
Credit Impaired
They say time heals all wounds. This is important in the world of credit. How much damage was done to your credit? How much time has passed? Have you obtained any credit since your trouble? How much of a down payment do you have? These are some of the questions that need to be answered. A mortgage consultant (like me) can help you over these hurdles. Remember we only get paid if you get a mortgage so our incentive to find you money is high.
Recreational – Cottage Mortgages
For those of us that have not been blessed with a family cottage, let’s mortgage our own. Lenders over the past few years have started to warm up to cottage mortgages. How much the lender will let you borrow will depend on a few things. The highest a lender will go is 85% of the purchase price or appraised value (which ever is lower). For this you need good credit and the property has to be in a marketable area. Lenders are looking at the area that the cottage is located, whether it is winterized and if it has road access. Cottage mortgage rates are typically 1% higher than the best 5 year rates. Rates are based on risk. The property is the banks security and a remote property away from city fire/police departments are considered a higher risk than your principal residence. Even the best client will pay more for a recreational property than his/her principal residence.
Investment / Rental Mortgages
Have you ever wanted to be a landlord? Are you kids going to university and you have found that the cost of a residence is out of this world? Why not buy a house and rent the extra space out to cover the mortgage cost? Lenders look at you as well as at the property you are looking to buy. Does the rental income cover the cost of the mortgage? Is the property up to fire code? How many units does it have? Are all the units “legal” units? Rates and condition vary on rental mortgages but something to keep in mind – if you exceed 6 units you will be viewed as a commercial unit and the rules and cost are greater.
New Canadians
Well you would be glad to know that lenders have a product for you. If you have relocated to Canada within the last 24 months. If you have a minimum of 3 months of full time employment in Canada – this can be waived if you are transferred under a corporate relocation program. If you have a valid work visa or landed immigrated status. You will require an international credit bureau but you too can be financed up to 95% of your purchase.