Mortgage Terms Decoded

First Time Home Buyers Nathan Lawrence 28 Jun

If you are a first-time home buyer there is a good chance you’ve never heard some of the common words associated with mortgages. A good mortgage agent will guide you through and explain each step of the process to you, and if you don’t understand something be sure to ask questions. To help you prepare for your first mortgage pre-approval meeting here are some terms you’ll want to understand.

Mortgage Term

This is the length of time you are locked into your mortgage with a specific lender before you have to renew.  Many first-time homebuyers choose a term of 5 years; however, other term lengths are available such as 1-year, 3-years, 7-years, etc. The length of the mortgage term that you choose will also effect your interest rate that you receive. When deciding on your term length it is important that you speak with your mortgage broker about your long-term and short-term goals. Your mortgage term can also be broken but there can be some expensive penalties to do so, you’ll also want to ask your mortgage broker about these as they can vary greatly from lender to lender.

Amortization

This is the total length of time you will have your mortgage until it is paid off in full (granted you don’t refinance, move, or make any changes to payments). Most mortgages are amortized over 25 years. If you use a mortgage calculator online (such as this one) you can see the difference the amortization can make on your payment.

Down Payment

This is the percentage of your home purchase that you will have to pay to your lender. The minimum down payment in Canada is 5% (for a $200,000 home this would $10,000). The majority of first time home buyers use a 5% down payment but there are some benefits to putting a larger down payment on your home which you can ask your mortgage broker about. When saving it is also important to not forget about closing costs, most lenders will want to see 1.5% of your home purchase saved in your bank account as well as your down payment (so to purchase a $200,000 house you’ll actually need $13,000 saved).

Rate

Everyone always focuses so much on this four-letter word, the lower your interest rate the lower your mortgage payment will be. A good mortgage broker will find you the lowest rate possible; however, they will also make sure that the mortgage features you receive are just as good (these can at times be just as important as the interest rate).

I Want to Buy a Fixer Upper … But how do I afford the Fixing Part?

First Time Home Buyers Nathan Lawrence 26 Sep

So you found the perfect home, but it needs a little TLC. Maybe you need a new roof, new furnace, new windows, or a kitchen update. All of these renovations can add up quickly and like many first time buyers, you may not have the money to cover the costs of these expensive renovations.

The good news is that there is a solution! It’s called a purchase + improvements mortgage. This allows you to purchase the home and get extra money to do the repairs as part of your total mortgage. Rather than having to come up with $10K or $20K to pay for improvements, this can be added into your mortgage. Your interest rate will also be lower than if you were to apply for an unsecured personal line of credit or putting the renovation costs onto your credit cards.

A few particulars to understand …

  • Estimates for the work will be required to get an approval for improvements.
  • Lenders and CMHC look for improvements that will add value to the home.
  • Improvements are typically required to be completed within 60-90 days from time of purchase.
  • The money for the improvements is released to you after the work is completed so you may require a way of carrying some costs until the work is done.
  • The improvements can be completed by yourself or a contractor. If doing the work yourself, only the costs of materials can be covered.
  • Depending on the scope of the work, applicable permits may be required.

 

Lenders don’t mind lending money to do improvements as it adds to the value and marketability of the home. A purchase plus improvement mortgage is a great way of turning that home with potential into your dream home. When getting pre-approved for your mortgage take the time to speak with your realtor and mortgage broker about how a purchase plus improvement mortgage may work for you!

Should I Get Pre-Approved?

First Time Home Buyers Nathan Lawrence 20 Jul

If you’re wondering what the answer to that question is, it’s simple, yes! A pre-approval is even more important as a first time buyer, not only will it help you understand mortgage financing it will also make you more confident when you go and write an offer on a house.

What is a pre-approval?

Quite simply a pre-approval looks at your income, assets, liabilities, and credit score and approves you for a maximum mortgage amount.  It looks at your current situation and determines if you would be a good borrower by assessing your ability to repay the mortgage loan. There are strict rules in Canada about mortgage lending which are based on your personal debt ratios that are calculated as a percentage of your debt payments vs gross monthly income.  Therefore, even if you have a good job with a large income it does not guarantee you will get a mortgage loan if you are also carrying a large debt load. Speaking with a mortgage broker will help you understand your unique situation.

Why a pre-approval can help

If you can say that you’ve been pre-approved when writing an offer it gives you a better advantage over someone that has not been pre-approved. This lets the seller know that you are a serious buyer who is able to secure financing on the property (which is important unless you can pay cash).

Also by getting a pre-approval you will have started your mortgage application and your mortgage agent will be able to request a lot of the required documentation ahead of time. Once you have an accepted offer the mortgage agent only has to get information on the property before submitting it for a full approval. This can save a considerable amount of time and can ensure your mortgage approval goes quickly and smoothly.

What a Pre-Approval Isn’t

One thing you have to remember about a pre-approval is that it is not a full approval. There are two things that the lender considers when approving a mortgage loan. The first is the borrower and their ability to repay the loan. The second is the property; in the event that a home owner defaults on the mortgage loan, the lender wants to ensure that they have a marketable property that they are able to resell. When getting a pre-approval you haven’t found a home yet so the process only assess the borrower. Once you have an accepted offer on a home it is then submitted to the lender for full approval with both the borrower’s details and the property details. This is why it is important to include a financing condition in your offer in case the lender does not approve the property or another unforeseen aspect of the application.

Getting pre-approved for a mortgage is the smartest way to approach securing a mortgage on a new home. It will give you time to meet with a mortgage agent that can answer any of your questions regarding mortgage financing. It will also put you in a stronger position when putting an offer in on a home and can make you more confident that the mortgage approval stage will go smoothly.

Things You Should Never Throw Away …

General Nathan Lawrence 8 Jun

There’s always the saying reduce, reuse, recycle but that’s not really what this post is about. We are more interested in looking at the things you should never throw away in order to get your mortgage approved. Part of the mortgage approval process is providing documents to confirm the details in your mortgage application. It’s nice to say that you make a million dollars a year but the lender is going to require proof that is actually true! Here are some key documents that the majority of lenders require to approve you for a mortgage:

  • Notice of Assessments – The information you receive in the mail from the government regarding your tax returns. You should have at least 2 years of these on file.
  • T1 Generals – Especially if you are self-employed but sometimes lenders will request these for further income details. These documents break down your income and are what you submit to the government for your taxes.
  • Paystubs – Usually you will want to start saving these for a few months when you know you are in the market to buy a home, most lenders will require your most recent one.
  • Property Tax Bill – If you are planning to refinance your home.
  • Separation Agreements – You should always keep a copy of this in your files.
  • Yearly Mortgage Statements – Once again if you are planning to refinance or if you plan to sell and buy a new home.
  • ROE or Last Paystub – If you move jobs it’s always a good idea to keep a copy of your last paystub or your Record of Employment.

 

Now don’t tell your mortgage broker that you’ve thrown these away! And rather than having these documents in a cluttered pile we thought we’d share some really cute filing cabinet ideas with you that we found on Pinterest!

Your Credit Report

General Nathan Lawrence 1 Jun

In the first blog post in this particular series, we went into detail about managing credit payments and how your payment history impacts your credit score.  Managing your monthly debt payments is extremely important and is often times underestimated by consumers.

Almost equally as important as managing your monthly credit payments, is also your ability to manage the outstanding balances that you carry on your credit cards and debt.  This particular aspect of managing your debt really applies to anything that would be considered a revolving debt:

Revolving Debt can include:

  • Credit Cards
  • Line of Credits
  • Home Equity Lines of Credit.
  • Any debt that allows you to use the credit, pay it off and then use it again.

The trick when it comes to managing the balances on revolving debt is knowing that you need to keep the outstanding balance below 65% of the limit.  The credit system is designed to look for red flags that indicate consumers might be at risk of defaulting on their debt.  One of those red flags is how much of your available credit limit you have used up.   If you have a few credit cards and all of those credit cards are maxed out, then it indicates to the credit agencies that you might be relying on your credit to manage your daily expenses and obligations.

Mortgage Prepayment – Mortgage Burning Party

Mortgage Tips Nathan Lawrence 11 Mar

Whether you have plans to apply for a new mortgage or to pay off your current mortgage early, it is extremely important that you take a closer look at your prepayment options. In most mortgage contracts there are special clauses that outline the allowances within your loan that permit you to make additional payments towards your outstanding balance, penalty free.

What is a prepayment option?

A prepayment option allows you to make additional payments against your mortgage during the term of the mortgage without incurring penalties.  It is important to understand that there are often conditions or rules that must be followed when making additional payments and every lender prepayment privileges are different.

Different prepayment options

Almost all institutions offer some form of prepayment privilege, the amount and how it can be applied varies significantly from one to another. Some offer only up to 10%, once per year on the anniversary date. There are others that offer as high as 20% per year and prepayments can be done throughout the year as long as the total does not exceed 20%.

 

Here are the most common ways a prepayment can be made:

  1. Increase Your Regular Payment – This allows borrowers to increase their regular monthly payment. The increase in payment is applied directly in the mortgage principle reducing the total interest costs. Small regular payment increases will help you to pay down your mortgage quicker, saving you thousands down the road due to the effect of interest not compounding on the entire mortgage amount for the life of the mortgage. Should the need arise you can go back to the original mortgage payment. Neat feature to have!

 

  1. Annual lump sum payments – typically these additional payments can be applied against the mortgage balance throughout each year of the mortgage term or on the anniversary date depending on the lender contract guidelines and rules. The payment is applied directly against the mortgage principle reducing the amount of interest paid over the term of the mortgage and shortening the life of your mortgage.

 

  1. Double Up on Payments – A few lenders will allow you to double up on payments, and the extra payment goes directly in the principle. If you double up once a year, you have just achieved the benefits of the accelerated weekly or accelerated bi-weekly payments. Some lenders allow you to skip a payment if you have made a double payment previously. This defeats the purpose, but tough times do arise and it can be a beneficial feature to have.

 

Whichever the combination of prepayment features, it is important as a mortgage borrower to understand how the features work.  Understanding how they work, will give you the mortgage holder the power to take advantage of them and save money over the life of the mortgage.  The benefit allows borrowers to pay off their mortgage faster and reduce interest costs.

Often time mortgage shoppers are only looking at rates and overlooking the interest savings of prepayment options. That is why it is important to have a mortgage broker make some recommendations for your specific needs. Not only can we find you the lowest rates, we also get you the features that will work to better position you to save money over the long term!

How a Mortgage Works when you Build a Home

Home Buyers Nathan Lawrence 11 Feb

Building a new home may seem like a complex and daunting undertaking but your mortgage doesn’t have to be. This particular blog post will discuss and highlight some of the key stages of a progress mortgage and what you should be prepared for.   A progress draw mortgage can be utilized under two different building scenarios:

1st:  A Self Built Home – You are acting as a general contractor and hiring trades.  You may also be doing some of the work yourself.

2nd: You’ve hired a contractor to build a home on a lot which you own and they require advances throughout the construction process.

A progress advance mortgage is exactly what it sounds like…rather than receiving your full mortgage in one lump sum, a construction mortgage is advanced in intervals as the house is being built. There are usually three or four draws (advances) at 19%, 45%, 75%, and 100% completion. Each advance will require a progress inspection report, which will note the percentage completed prior to the advancement of funds.

It is always important to meet with your Mortgage Broker anytime you are thinking about mortgages…but it is especially important when thinking about a Progress Advance Mortgage as there is a large number of details that need to be considered and ironed out early in the process.   For instance, the advances always happen at the end of a phase of construction.  As such, there may be expenses that you may need to carry until that stage’s advance is released.  This makes planning cash flow for your construction project very important.

So what are the typical stages?

Advance: Land/Foundation Preparation

The first phase of the building project is where you will be breaking ground to lay the foundation of your new home. Although some lenders will vary, typically during this stage the foundation is poured and back filled. Once complete, your Mortgage Broker will work with you to coordinate the inspection and advance.

Advance: Lock Up Stage

The second phase of the building project is called Lock Up.  This is when the structure is complete and the building can be locked up.  Meaning that the walls are up, roof is on, windows and doors are installed. Your progress inspection report will typically indicate that your home is 45% completed and you will receive your second advancement of funds.

Advance: Ready for Finishes. 

For the third advance stage, the house is ready for the finishing work.  So at this point, the dry wall is up, taped and mudded.  This means that everything behind the dry wall is done…insulation, wiring, plumbing, etc.  The house is ready for the final touches.

Final Advance:  100% Complete.

You’ve made it and survived!  That’s right, you are ready to move into your new home.  During the final phase, all of the finishing work has been completed.  The lighting installed, walls painted, flooring, cabinets and fixtures are all in and ready for you to use.   At this stage you will receive the final advance of your mortgage, completing the process with one final progress inspection report.

In closing…

Although there are many decisions to be made when building a home, such as choosing house plans,  trim,  paint, and so on,  we often do not put enough focus on the details of the mortgage. It doesn’t get the attention it demands because it is not as “exciting” as the rest of the process.  It is important to make sure that the time is taken to properly understand the mortgage process, advance requirements and the various stages.  If you understand this going into the planning and building stages, you will find that the process is much less stressful than it otherwise could have been.

It is also important that you build your team of professionals and that those professionals know who each other are.  Building a home involves more than just contractors.  You also need to ensure that your insurance agent, realtor, mortgage broker, and lawyer are pulled in at the right stage. They need to know who each other are in the event that they require specific details about the build. Doing your homework and putting the time in upfront to get everything organized will save you headaches during the build.

Happy Building!

Financial Stress During a Marriage Breakdown

Mortgage Tips Nathan Lawrence 3 Feb

When a marriage comes to an end, both individuals are left trying to pick up the pieces of their lives and find themselves feeling emotionally, physically, and mentally drained. People often describe feelings of fear, anxiety and hopelessness.  When children are involved thoughts about their future, lifestyle impacts and coping with loss can also play out in your mind. All of these feelings can become overwhelming without the right support systems.  One of the significant stresses that comes along with a marital breakup is having to deal with the financial affairs that require attention for both parties to move on.

During a marriage breakdown the biggest asset to address tends to be the matrimonial home.  The end of a marriage does not mean the end of homeownership.  A Mortgage Broker can help separating couples explore options:

The first option involves one of the partners taking over the current home and buying the other individual out of the property.  This can be done by refinancing the house to pull out some or all of the home equity.  Many people are not aware (mainly because not all banks/lenders offer the options), but by working with a Mortgage Broker you can gain access to lenders that allow refinances back up to 95% of the value of the home when going through a separation.  This can make taking ownership of the family home much easier.

The second option would be to reassess both of your application, sell the current home and then utilize the equity from the sale of the home towards the purchase of two smaller homes.  Giving both individuals the opportunity to gain a fresh start.

If you are facing a marriage breakdown, it is important to know that you are not alone and support is available.  The tough part sometimes is making the first step by picking up the phone or send off that email.  Our team of Mortgage Professionals understand the financial stresses that exist during a marital breakdown and we are here to help by providing timely and accurate advice on how to best handle your mortgage transition.

Take Control of Your Mortgage in 2016 – Your easy, quick win, New Year’s Resolution!

Mortgage Tips Nathan Lawrence 4 Jan

It’s officially 2016!!  So what have you resolved to do this year?

  • Exercise more?
  • Go on that dream vacation?
  • Spend more time with family and friends?
  • Work less??…maybe work more?
  • Tackle your debt load?
  • Buy a new home?

 

Regardless of the resolutions that you’ve committed to, sometimes the best way to get moving with new commitments is to start with an easy win!  Something that can get you motivated!  Something that can be completed easily, with little work on your part!

What?!?! …that’s exactly what you’re thinking isn’t it? …”Which of those resolutions can be done easily?”  “Where is this so called ‘easy win’?” 

Every year, we make huge commitments to ourselves and we often fail because we become discouraged quickly.  I’m here to tell you that some resolutions are much simpler than we make them out to be.  For instance, saving interest, taking control of your debt and improving your monthly cash flow…that’s right…this can be an easy win.

It all starts with taking a look at the largest debt that you have, your mortgage.  Most home owners don’t take the time each January to have an independent Mortgage Broker assess their mortgage and how they might be able to better leverage home equity in their favor.  We often avoid talking about our finance and debts, which makes sense given that money is often one of the leading causes of stress in a home.   As Mortgage Brokers, we take your whole application and from that financial picture we look at how you could:

  • save interest,
  • reduce your month payments,
  • consolidate debt,
  • or pay your mortgage off sooner.

 

So how is getting a better handle on your finances an easy win?  Simple!… it involves very little of your time and commitment…actually, it will only take about 5 minutes right now to get the ball rolling. Heck, you’ve taken the time to read the blog, what’s another few minutes of your time to get a no obligation second opinion?    Step 1: Complete our online application and hit the “Easy Button” or in this case the “submit” button.   Did you hit it?? Great, now on to step 2… Sit back and let our knowledgeable team of Mortgage Professionals take it from here!

 

Happy New Year!  Wishing you and everyone you know a Happy, Prosperous and Stress Free 2016!

Your Mortgage Tidbit – Pre-Payment Penalties

Mortgage Tips Nathan Lawrence 17 Dec

Did you know that when looking at Mortgage Pre-payment penalties, that they are not all created equal??  The formula and penalties themselves are pretty consistent but the numbers they use in those formulas could lead to a Pre-payment penalties that are significantly different from one lender to the next. #MortgageTidbit #NowYouKnow #SaveOnInterest #NotCreatedEqual #WeLoveMortgages

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