5 Sep

TOP 5 COSTLY FINANCIAL MISTAKES HOMEOWNERS MAKE WITH THEIR MORTGAGE

Mortgage Tips

Posted by: Prabhjeev Gambhir

1. Not consolidating high interest debt into low interest mortgage.
2. Paying “fees” to get the lower rate
3. Not looking at their long term forecast
4. Taking a 5 year rate when 3-4 years can be cheaper
5. Having their mortgage with a lender that has high penalties and restrictive clauses.

Not consolidating high interest credit or vehicle loans in their mortgage. I hear this often “I don’t want to use the equity in my home” or “I can pay it off”. Many times when people end up with debts is due to inefficient budgeting and understanding what your income is and your debt payments are. There are many folks where monthly payment is the driving factor in their monthly budget. Making minimum payments can take you YEARS to pay off. Soon after people get mortgages, they are buying that new car at 0% interest and $600 month payments, then the roof or hot water tank goes and they put another $15,000 on credit, then someone gets laid off and boom…can’t make all the payments on all those debts that it took a 2 income family to make. It’s a true reality. Let’s look at an example:

Paying Fees to get the lower rate.
Dear rate chasers…they catch up with you somewhere. Nothing comes for free. Let’s face it, you go to the bank and their goal is to make money! A lender that offers you a 4.49% with a $2500 vs a 4.64% with no fee and you think “yes, score what a great rate!” Hold your coins… as you could be walking away poorer as the banker didn’t run the bottom line numbers for you. Chasing rates can cost you more money in the long run.

Your $500,000 mortgage was offered with two rates for the business for self guy who needed a mortgage where they didn’t look at the income so much: 4.49% and $2500 fee and $4.64% no fee. Lets see what it really looks like for a 2 year mortgage.

$502,500 (built in th $2500 feel) 4.49% – payments $2778 per month – $479563 owing in 2 years
Total payments: $66672
$500,000 (no fee) 4.64% – payments $2806 per month – $477634 owing in 2 years
Total payments: $67344.

Wait? So by taking the lower rate with the fee means I owe $1929 MORE in 2 years and only saved $672 in overall payments?

The long term financial planning side.
I counsel many of my clients to take 2-3 year year terms for a variety of reasons. Better rates, lower payments, capitalizing on the equity in your home to pay off a car loan or upcoming wedding. Did you know the average homeowner refinances every 3 years of a 5 year term and pays a penalty?

Taking a 5 year when 3 and 4 year rates might be a better option. Many times the 2-4 year rates can be significantly lower than the 5 year rates.

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31 Jul

FIVE POINTS TO CONSIDER BEFORE YOU LIST YOUR HOME

Mortgage Tips

Posted by: Prabhjeev Gambhir

FIVE POINTS TO CONSIDER BEFORE YOU LIST YOUR HOME

There are several things to consider before you take the plunge and put your home up for sale. This might sound obvious, but the first step is to call your mortgage broker, not your lender directly or your realtor.
You don’t have to look long for an unfortunate story of someone who didn’t understand their portability, penalty or transfer costs. Here’s how you avoid this scenario.

1. The anniversary date of your mortgage will depend on your penalty. If you are in a variable rate there usually (unless you took some kind of no frills product with an additional penalty for the appearance of a lower rate) will pay 3 months interest (so a monthly payment and a half) in a fixed rate it can be up to 1-4.5% of the outstanding mortgage balance. Remember we can estimate things, the only guarantee you will have of your penalty is when the lawyer requests the payout statement.

2. Just because a mortgage says its portable doesn’t mean you don’t have to completely re-qualify. Changing properties means complete requalification of everything; credit, income and property. Less than one per cent of mortgages actually get ported due to the changes in the market, or your circumstances.

3. If you have accumulated outside debt, you may not even qualify to purchase for more due to recent rule changes. You’ll need clarity on what the approximate net will be after anything that is required to be paid out to improve qualification.

4. If you list your property and want to buy first or need money for a deposit, you may need to change your mortgage first which you won’t qualify for if your property is already listed.

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27 Jul

TOP 8 QUESTIONS ABOUT REVERSE MORTGAGES

Mortgage Tips

Posted by: Prabhjeev Gambhir

TOP 8 QUESTIONS ABOUT REVERSE MORTGAGES

Having completed dozens of reverse mortgage deals, there are some questions that I find I get over and over again.
So today I thought I’d write a piece on the 8 most common reverse mortgage questions that people in Canada have regarding reverse mortgages.

1- If I have an existing mortgage on the property, can I get a reverse mortgage?
Not only is this the most common question regarding reverse mortgages, it is actually one of the most common uses for a reverse mortgage – to pay off the current mortgage and eliminate that payment and help with monthly cash flow.
However, it is important to realize that you would need to qualify for enough to pay that existing mortgage in full.
For example: If you have $70,000 remaining on the mortgage, you would need to qualify for at least $70,000 to be eligible for a reverse mortgage.
If you owe $70,000 and qualify for $100,000 in reverse mortgage funds, the $70,000 would be paid first and you would be left with the remaining $30,000.
The good news is that the reverse mortgage funds can also be used to pay any penalties or charges for paying out your mortgage as well.
However, the existing mortgage must always be paid off using the reverse mortgage funds and you get to keep whatever is left. Essentially, you are swapping your mortgage with a reverse mortgage and keeping the excess cash.

2 – Can I pay the interest or make payments on the amount I receive?
Yes, you can make monthly interest payment if you choose and you can also pay up to 10% of the amount borrowed (1 payment per year) if you wish.
However, you also have the option to pay nothing at all until you sell the property or until you pass away. Most people choose this option but it is nice to know that you can pay the interest every month (essentially turn the reverse mortgage into the same thing as a Home Equity Line Of Credit).

3 – How do you determine how much I qualify for? I thought I could get 55% of my home value?
This is a common question that we get. It is important to note that you can qualify for up to 55% of the value of the property and not everyone will get this amount. The words ‘up to’ are very important in this statement.
To determine how much you qualify for, four different factors are used: The ages of all applicants, the property value, the property location (postal code) and the property type.
Here is a quick example for all 4 factors: Someone aged 80 will qualify for more than someone aged 60; someone in a city will qualify for more than someone in the countryside; someone with a property value of $500,000 will qualify for more than someone whose value is $200,000 and someone who lives in a detached house will usually qualify for more than someone who lives in a Condo.

4 – I’m 60 but my wife is 53, can we still qualify?
Unfortunately, no. Both applicants need to be 55 or over to qualify. Even if just one of you is on the title, because it is deemed a ‘matrimonial home’ (meaning that the husband and wife both have a legal right to the home, by nature of being married) both of you need to be 55 or over.

5 – What is involved in the application?
Reverse mortgages aren’t as difficult a process to go through as a traditional mortgage. However, you aren’t going to simply be given the money either – remember you are still talking about large amounts of money here and the lender is a Schedule A bank.
Your credit score and income are not usually significant factors in the application – but the lender will still check these. In addition to this, proof of identity and other such paperwork is required.
An appraisal is always required and is the first step – so the lender can identify the market value of your home and therefore how much they can lend. However, it is possible to get a ‘quote’ before this.

6 – What if I want to sell my home?
You can sell your house at any time if you have a reverse mortgage. The mortgage amount (plus any accrued interest and prepayment penalties, if any) would then be paid from the proceeds of the sale. The process would be exactly the same as if you had any other kind of mortgage or HELOC on the property.

7 – Will I still own my home?

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17 Jul

HOW TO SHOP FOR A MORTGAGE

Mortgage Tips

Posted by: Prabhjeev Gambhir

For many people, a home will be the largest purchase of their life. It stands to reason then, that when you are shopping around for your mortgage you will want to take certain steps to ensure you are getting the sharpest rate and best product. We have a few pointers to make you a savvy shopper when you are out looking at different mortgages—get ready to take a few notes.

1. Do not always rely on the bank for the sharpest rates
Mortgage Brokers can often beat the bank rates by using different lenders. They can also often get you a SHARPER rate at your own bank simply because of the high volume that they do with them. Brokers have access to a number of different lenders giving you more options for not only the best rate, but also the best product for YOU.

2. Know your credit score
Your credit score is a large factor in your mortgage application. You need to know where you stand with your credit BEFORE you begin the process of shopping. All lenders will look at your credit history and score first then they build a file around that. A mortgage broker can obtain your credit score in mere minutes-all you have to do is ask.

3. Make it a one-stop shop
Avoid shopping from institution to institution. You may think that more options lead to better rates, but in fact lenders will frown upon you having your credit score pulled multiple times. This is where the benefits of using a broker come into play. They will pull your score ONE time only and use that to shop around with lenders for you. Really, it’s like having your own personal shopper!

4. Understand that the market will change.

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5 Jul

THINGS MORTGAGE PROFESSIONALS WISHED THE SELF EMPLOYED KNEW

Mortgage Tips

Posted by: Prabhjeev Gambhir

This is the third part of a series by Pam Pikkert of things the average mortgage professional wished people knew so that they would not be held back by inadvertent missteps.

The next installment in the things we wished people knew series is targeted at the self-employed. This intrepid group of risk takers are entrepreneurial and help keep the economy moving but all too often we meet with these people and have to give news we would rather not give. So let’s look at what we wish they knew.

1. Surround yourself with professionals. You are the expert in your field without a doubt, but that doesn’t translate to being able to do it all.
Having a knowledgeable book keeper and a well-qualified accountant can save you a fortune in tax deductions and time lost. They are in your corner come tax time and heaven forbid through an audit by the CRA. Their job is to know the ins and outs of taxes so that you can put your focus on growing your business.
A lawyer is also invaluable. They will protect you against loopholes you didn’t know to look for in contracts.
Mortgage professionals are also a must. A Dominion Lending Centres Mortgage professional can help you with your home, a rental portfolio if you plan to diversify and commercial lending when you are ready.

2. You can’t have your cake and eat it too. The lending landscape in Canada has totally shifted in the past few years. Long gone are the days of simply stating what you earn without any verification of such and being offered a mortgage with little money down and low rates. If you choose to write off as much of your income as possible to avoid as much taxes as possible, then you will pay a higher interest rate on your mortgage

3. You have to keep your affairs up to date. That means getting the accountant prepared financials, filing your annual returns and most importantly paying your taxes. If you have a large outstanding tax balance, you are going to find it nearly impossible to get a mortgage. Taxes trump mortgage in order of who gets paid first so there are no prime or near prime lenders out there who will lend to you until these are paid.

4. The magical number in the mortgage world is 2. You have to have a 2-year history of self-employment with accompanying documentation to be able to proceed with the mainstream lenders in most cases.

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29 Jun

WELCOME TO CANADA-BUYING A HOME IN CANADA IS A BIG STEP

Mortgage Tips

Posted by: Prabhjeev Gambhir

Oh Canada; Our home and Native Land.
The land of opportunity.

You’ve arrived in a new country with hopes and dreams. If you’re an immigrant like me, one of these dreams is to own a home, and what better way to put down roots.
The first thing you want to do is open a bank account and start building credit as soon as possible with a credit card. Fortunately, there are also programs to help new Canadians purchase their first home and make it easier for your family to become established in Canada.
The new to Canada program will assist you with getting into home ownership sooner than you think.

Here is a list of documentation required:
• Valid work permit or verification of landed immigrant status
• Income Confirmation: You will need to provide proof that you have been working full time in Canada for at least three months. Proof of income through either an employment contract and pay stubs
• Proof of down payment: The total down payment will vary based on the final purchase price. The down payment can come from your own savings or it may be possible for your family to provide you with a gift. CMHC will insure newcomers with permanent resident status with as little as five per cent down, while non-permanent residents must have a 10 per cent down payment to purchase a home
• Purchase and Sale Agreement

A good credit history is important, however, as a newcomer, you may provide alternative credit supporting documentation.

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