How much time do I need to complete my mortgage?

One of the biggest things that most of my clients do not realize is that it takes time to get a mortgage. Contrary to to what some people believe (you know who you are) you can not walk into a bank on a Tuesday and expect to have a mortgage on Wednesday. There is a certain amount of due diligence the lender wants to to do on you and the property…..and this takes TIME. I’m going to lay out the steps and associated timeline for a mortgage below in the hopes that the small percentage of society that calls me up every week looking to fund a mortgage in 2 days will see it and take it into consideration the next time they need a mortgage. I am going to lay out the steps for purchasing a house, but it will also be approximate for refinances and switches. And of course always get your mortgage pre-approval before you go house hunting

Step 1 – Approval (time to complete: 1-2 days)

Once you have an accepted offer make sure you or your agent fax a copy of the signed agreement and MLS listing to your broker. This si waht I use to get all of the particulars of the house and the deal and allows me to send the file to the lender to get an approval.

Step 2 – Fulfill Conditions (time to complete: 3-4 days)

Once we get the approval back from the bank there will be a list of conditions that will need to be satisfied such as proving the downpayment and your income. In my next post I am going to talk a bit about all of the documents you will need to provide to complete your mortgage, but for now all you need to know is you are going to probably have to provide a letter from your employer, paystubs, possibly tax returns etc. You will also need to set aside an hour or so to sit down with your broker to walk through the fine print of the mortgage and sign all of the documents required.

Step 3 – Appraisal (time to complete: 2-4 days)

This step is usually done at the same time as step 2. Depending on the lender and if the mortgage is going to be insured you may or may not even require this step. Unfortunately you are at the mercy of the appraisers schedule at this point. If he/she is busy it could take a week for them to view the property and write up the report. If you are lucky enough to find an appraiser that is slow, they can normally get it done in a couple of days. I will talk more about appraisals in a later post.

Step 4 – Sign at the lawyers Office (time to complete: 10 days)

The final step of any mortgage is signing the final legal documents at your lawyers office. For this to happen your lawyer needs to receive a package from the lender (usually about a week before) so they can draft the final papers for you to sign. One of the most import numbers to remember is 10. Most lenders will require atleast 10 days between the time they receive all of your supporting documents and the closing day of the mortgage. This gives them enough time to send your lawyer the info they need and have the mortgage close on time.

Please make sure you have atleast 2 to 3 weeks for your mortgage from start to finish. It makes the experience far less stressful for everyone involved and will give you access to more lenders since some will refuse to even look at a deal that doesn’t have atleast 2 weeks until closing. Of course exceptions can be made in certain circumstances and mortgages can be rushed through the process in 5 days, but lenders do this with great hesitation and very few will do it at all.

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If you are like most Canadians you are probably not familiar with Reverse Mortgages, let alone the possible benefits. Reverse Mortgages have been available in Canada for years, but have not been a popular solution due to the higher interest rates associated with this product and the fear of losing the equity in your home. I am going to attempt to explain how this might be a product that could help you or someone you know enjoy their retirement.

First, let’s talk about what made this product less than attractive in the past. Quite simply it was the interest rate. In the past you could expect to be paying 8-10% in interest. Over time this would definitely add up and significantly erode your equity in the home. The Canadian Home Income Plan became a chartered bank earlier this year giving them access to much cheaper funds. This results in you getting a rate that is currently around 4%. This now becomes a much more attractive solution.

What is a Reverse Mortgage

A reverse mortgage gives you access to the equity in your home without the need for making monthly payments like a conventional mortgage. If you are over 60 years old you can borrow up to 40% of the value of your home and you do not need to make a single mortgage payment as long as you or your spouse live in the home.

How does a Reverse Mortgage Work?

It is quite simple. The Canadian Home Income Plan lends you up to 40% of your home’s value. This money can be used for whatever you need it for…..vacations…living expenses….etc. The funds are tax free and does not affect your old age pension or guaranteed income supplement. You can take the money in a lump sum or set up a planned advances for a set period of time. Since you are not making payments the interest keeps accruing to the mortgage and will not be paid until you sell the house or your estate can remortgage the property if they wish to keep it.

Is a Reverse Mortgage Right For Me?

It could be. As more retirees are carrying larger amounts of debt in to retirement they are finding their fixed incomes are being stretched and they are not leading the retirement they dreamed of. A Reverse Mortgage is a great way to consolidate debt and your current mortgage and not have to worry about making monthly payments. This will allow you to free up your cash flow to spend on living your dream retirement.

If you would like to learn more about Reverse Mortgages or any other mortgage solutions please feel free to contact me.

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There are a few common credit mistakes that I see people make over and over again. It is possible to never miss a payment on any of your loans and still have a poor credit score. So what is this common mistake……credit shopping. Most people do not realize that the more often your credit bureau is viewed by lenders the more damage you are doing to your credit score.

How Much is Too Much?

There is much debate about how often your credit can be viewed and how much time between viewings must pass in order to maintain a solid credit rating. The credit rating agencies such as Equifax and Transunion to not make this info available to the public, so it pays to use common sense. Obviously the rating agencies realize that most people will probably have their credit viewed a couple of times during the year. You can’t get a cell phone or a Future Shop credit card without your credit being viewed so I wouldn’t worry too much about occasional credit checks. Where most people get in to trouble is when they are shopping for things like a mortgage. They will go from bank to bank trying to find the best rate and the best product, but they don’t realize (or don’t care) that their credit bureau is being pulled every time they submit a new application. If you have 3 or 4 credit viewings over a 3 week period you can be sure this will have a negative impact on your rating.

Be sure to do your due diligence and research before you fill out the application. Better yet use a mortgage broker that only needs to pull your credit report once and can submit that report to as many lenders as needed.

I Have Bad Credit…. Can I Still Get a Mortgage?

Probably. There are several lenders out there that can provide you with the mortgage you need. Keep in mind you are going to be paying a higher interest rate and will probably be required to put down atleast 15% of your own money for a downpayment. It is also helpful if you can get a solid co-signor to help strengthen the application. Often times a parent or sibling can cosign on the mortgage and if their credit is solid it can give the lender a greater comfort level with lending you money.

If you have any questions or would like to discuss your credit situation, please feel free to contact me. I have helped countless individuals with damaged credit just like you.

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….if you don’t you are certainly not alone. It is hard to get by in today’s society without having some sort of credit, yet most people are not aware of the health of their credit. I am going to talk briefly about some of the misconceptions I come across when dealing with people and their credit.

Wrong. It is almost better to have bead credit rather than no credit. Without a credit history the lender can not determine the risk associated with lending money to you. They can’t see a history of paying your debts on time and they have no idea how you are going to handle paying what will probably be the largest debt you will ever take on in your life. Atleast with poor credit the lender knows you have a hard time with debt and can price your loan according to the risk associated with lending to you.

My Advice

If you are thinking of getting a mortgage and currently have no or little debt I would suggest you start trying to get some more credit. I know it seems counter intuitive, but most lenders require you to have atleast two active pieces of credit (car loan, credit card, unsecured loan, line of credit…etc). They also like to see about $2,000 in total available credit. Having $500 in credit outstanding just won’t cut it in most cases. The key is to use the credit and use it responsibly. Even if you just charge $20 a month and pay it off when you get your statement, this will atleast demonstrate your ability to handle debt.

Misconception #2 – I have quite a bit of debt….there is no way I can get a mortgage.

Wrong. This statement is just as false as the first one, and I would say I actually hear this more often. Just because you have what you consider to be a significant amount of debt does not necessarily mean you are not an attractive candidate for a loan. In fact, the opposite could be true. Having a healthy amount of debt and managing it well is exactly what the lender wants to see. You are demonstrating your ability to be a responsible mortgage holder. Where you will get into trouble is when you max out all of your credit and only pay the minimum balance each month. This is a clear signal to the lender that you are stretched to your limit and adding a mortgage to the pile of debt will only make things worse. Often times I will see a credit report with a poor score, but no missed payments showing. A closer look will normally reveal the credit lines are close to their limit and probably only minimum payments are being made.

What Can I do To Improve My Credit

Well, if you have no credit or little credit…go get some. It can be a department store card or a Citibank Visa. If you are having a hard time getting credit, go to your bank and ask for a secured credit card. In this case the bank will take a deposit to hold for the total limit of the card. If you were to default they already have your money to cover the debt. Once you have proven you are responsible with credit they will normally convert the credit card to a normal Visa and return your deposit. This is one of the most affective ways of building or restoring damaged credit.

If you are an individual that has all of your credit lines maxed-out, you need to start paying down your debt. You don’t have to pay it off completely, you just need to knock 20% of the balance off. This will show you have a bit of a credit cushion and you are not stretched so thin.

To take a look at your credit score visit www.equifax.com and order a copy of your credit report. It is recommended you do this once a year to make sure there are no inaccurate items on your report.

I hope this helps. Please feel free to give me a call or leave a comment below. Part of any good Mortgage Agent’s job is credit counseling and helping people get on the right track to home ownership.

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Can We Expect A Drastic Increase in Mortgage Rates?

No. Sure we are going to see rates go up….after all we can’t expect to keep rates at recent low levels indefinitely, but it is most likely not going to be a quick rise.

Do Recent Events in the European Economy Have an Impact on Canadian Rates

Yes. In today’s global economy what happens in Europe, Asia, the US…etc does have an impact on Canada’s economic decisions. In fact the reason we are expecting variable rates to climb slowly in the coming years is due to the impact of the US’s financial situation. Although their economy appears to be recovering, if you dig deeper you will see a major part of that recovery has been driven by Obama’s stimulus program. Unfortunately the stimulus program comes to an end this summer and will probably result in a slow down of the economy. Because of this Canada needs to be careful when it comes to raising rates. If we raise our rates too quickly it will result in an increase in the value of our dollar. In turn this will make our goods more expensive to US clients which will reduce demand for our goods and ultimately result in a slow down of our manufacturing sector.

In a nutshell, if you are currently in a variable mortgage….hold tight. There is no need to panic and lock in. Even with the slight increase in prime, variable rates are still at an all-time low. If you are considering a variable mortgage, go for it. There is still plenty of time to enjoy the low variable rate before it climbs past where fixed rates are today.

If you would like to chat more about your situation, please feel free to call me or send me an email.

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The Globe and Mail ran a couple of articles recently on hybrid mortgages in Canada so I thought I would weigh in on the subject. The first article they wrote last week spoke of the advantages of a hybrid mortgage and how it can help guard against rising interest rates. The article was quite short and did not go in to much detail on how the hybrid mortgage actually works. The Globe then followed up with a second article yesterday quoting a mortgage broker and talking about some of the pitfalls.

What is a Hybrid Mortgage?

So what is a Hybrid Mortgage and how does it work? A hybrid mortgage is basically the love child of a variable and fixed rate mortgage. The client can choose how much of their mortgage to set at a fixed rate and how much to allow to float at a variable rate. The logic behind this product is it will help protect you against rate increases with the fixed rate while still allowing you to enjoy some benefits if rates fall via the variable rate.

Is a Hybrid Mortgage right for you?

I have never found a situation where a hybrid mortgage product made sense for a client of mine……and I will explain why. In an interest rate environment like we currently have (historically low variable and fixed rates) you would be giving up some of the upside of having a variable rate. Let’s consider an example. You can currently get a variable rate mortgage at 1.65% for 5 years. The current 5 year fixed rate is around 4.3%. Let’s assume you take the variable rate at 1.65%….how much would it have to increase before it reached the fixed rate level? It will have to increase by 2.65 percentage points before you would be at the same rate as you would have been if you took the fixed rate. Most “experts” are predicting we will see variable rates increase by about 1.5 percentage points by the end of 2011…..so you are still well below the fixed rate. Of course none of us have a crystal ball so we don’t know where rates are actually going to go in the long term, but I think it is pretty safe to say it could be 3 years or more before we see variable rates climb to above 5%. That means you have quite a bit of time to save money on your mortgage before your rate climbs significantly. This could equal thousands of dollars in interest savings…depending on the size of your loan.

I also realize that a variable rate is not for everyone. If you are more comfortable with a fixed rate…..then go with a fixed rate. If you are looking for the stability and security of consistent mortgage payments, then why would you add a variable component to the mortgage. I would dare to say most people that elect for a hybrid mortgage are people that probably would have gone for a 100% fixed mortgage if their mortgage provider didn’t talk them into this product and subsequently they probably allocate a very low percentage of the mortgage to variable. As a result any interest savings would be minimal.

The article quoted Steve Garganis from Verico Mortgage Now brokerage as their contrary opinion for the article. Although I agree with the fact this mortgage is not for everyone, I disagree with his reasons why. Mr. Garganis mentioned that the variable and fixed portions of the mortgage can have different maturity dates and as a result be very difficult to move to a different lender if the client chooses. I would say most of the time this isn’t the case and both parts of the mortgage would mature at the same time. I will say that depending on the lender and how they register the mortgage against the property, it could be difficult to “switch” the mortgage to a new lender and a total refinance might be required. This could result in the client having to pay $1,000 or so in legal and appraisal fees.

In closing I think it is great we have access to so many different mortgage products and options, but we must keep in mind that every individual is unique and will require a unique mortgage solution. Maybe a hybrid product is exactly what you need, but the key is working with a qualified mortgage professional who can show you the benefits and pitfalls of several options and help you get the mortgage that is right for you.

I would love to hear your thoughts and possibly your experiences on the subject. Feel free to leave a comment below or send me an email.

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A Home Equity Line of Credit Might be For You

A home equity line of credit (HELOC)  provides a level of flexibility that is not available from your traditional fixed or variable mortgage. A home equity line of credit allows you to customize your mortgage payments and pay as little as interest only making this an ideal product for anyone looking to keep their payments as low as possible.

How Does a Home Equity Line of Credit work?

Like a traditional mortgage, a HELOC is registered against your property. This provides the lender with greater security resulting in you receiving a lower interest rate. Interest rates for most HELOCs are around prime plus 1% (3.25%). Compare this to an unsecured line of credit around 7% or many credit cards which are around 18%. Your interest savings can be substantial. Your HELOC gives you access to the equity in your home (up to 80% of the value of the home) to use for emergencies, large purchases, renovations, vacations….etc. You can have your entire mortgage as a line of credit or you can add a line of credit to an existing mortgage if you wish.

How Can I Use My Line of Credit?

1. Home renovations – Use the equity in your home to fund your upcoming renovations or emergency home repairs
2. Child’s education – Your home provides a cheap source of funding for your child’s education. You can even give your child access to a portion of the line of credit in case of emergencies while they are away at school.
3. Self employed – Is your business cyclical or is your income unpredictable? A home equity line of credit provides you with access to funds at a reasonable interest rate to help float your business through the slow times.
4. Investing – Certain home equity lines of credit can be used for investing purposes and making your mortgage tax deductible with programs such as the Smith Maneuver
5. Buying a second property – Would you like to purchase a second property such as a cottage or an investment property but don’t have the downpayment? Would you like to buy a property in a different country, but are not familiar with their mortgage market? A home equity line of credit can provide you the funds necessary to make your next purchase.
6. Debt consolidation – Why not consolidate all your high interest credit card and non-secured debt into one low line of credit secured against your home. You will pay less interest and pay off your debt quicker.

As you can see a home equity line of credit can be an effective tool to keep your carrying costs low on larger purchases as well as giving you easy access to cash in case of emergencies…..but it must be used responsibly. That being said using a HELOC irresponsibly can be a recipe for disaster. After all, it gives you access to the majority of the equity in your home and allows you to make interest only payments which would result in you never paying down any of the principal if you choose.

If you have any questions about Home Equity Lines of Credit or would like to discuss your situation to see if this product might be right for you, please do not hesitate to contact me.

Some examples of a HELOC from Canadian Banks

1. Scotia Total Equity Plan
2. BMO Readiline – Homeowner line of credit
3. CIBC Home Power
4. RBC Homeline Plan
5. TD Home Equity Line of Credit

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Mortgage Closing Costs Explained

More often than not first time homebuyers neglect to set aside enough money for their closing costs. They assume they can use all of the money they have saved for their mortgage down payment and are usually not aware there will be closing costs that will need to be covered on closing day.

Closing Cost Advice

The rule of thumb is to set aside 1.5% of the purchase price of your home or condo for closing costs. In fact most lenders will require you to prove that you have this amount in liquid assets ready to go on closing day. Most first time homebuyers in Ontario will get a portion if not all of their land transfer tax back, but the lender still requires you to have this cushion in case any unforeseen expenses arise. You will have to provide three month’s worth of bank or investment statements showing you have these funds available….cash from a shoebox will not be considered acceptable.

What is included in closing costs?

Closing costs are made up of several items and depending on the type of property you are purchasing (condo, house) and whether or not you are a first time homebuyer, will dictate what your closing costs will include. Here is a list of the most common items:

1. Legal Fees
2. Title Insurance
3. Land Transfer Tax
4. Adjustments to purchase price
5. Accrued property tax or utilities owing to the seller
6. Any unit upgrades not included in the original purchase agreement – New home purchases
7. Possibly GST – New home purchase

This is not an exhaustive list and every case is unique, but if you stick with the 1.5% rule you should be ok.

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